ity, as the information asymmetries that plague revenue collection in any corner of the world
are particularly acute for postsocialist states, which may also suffer from serious commit-
ment problems. As will be seen, firms across the postcommunist world exhibit patterns of
revenue hiding and state support broadly consistent with a model in which the state cannot
commit to leaving firms with a portion of their production, and moderately consistent with
a model of commitment power but inefficiencies in taxation. In particular, firms which an
outside observer might expect to be less taxable — small firms, firms in sectors dealing in
cash, etc. — do indeed report higher levels of revenue hiding. Further, firms which hide are
less likely to receive state support: they are more burdened by corruption, are less able to
appeal administrative violations to higher authorities, are less likely to have their contracts
and property rights enforced, and are less likely to say that local governments are supportive
in general.
In providing theoretical underpinnings to the argument that the state will tend to favor
economic activity which it finds easier to tax, this paper builds on a substantial literature
that places the state’s desire for revenues at the center of analysis.
North (1981), for
example, bases his analysis of economic history on the premise that states are interested in
maximizing revenues; Tilly (1990), Skocpol (1979), and the various essays in Evans et al
(1985) motivate the assumption of state autonomy by emphasizing the revenue needs of the
state; and Brennan and Buchanan (1990) focus, as does this paper, on the credibility of any
promise by the state to leave economic actors with a portion of their production. Further,
7
Convention