Tax Policy Formation and the Transnationalization of the Public Policy Arena A Case Study of Georgia Nina Dadalauri PhD Dissertation Tax Policy Formation and the Transnationalization of the Public Policy Arena A Case Study of Georgia Politica © Forlaget Politica and the author 2011 ISBN: 978-87-7335-146-8 Cover: Svend Siune Print: Juridisk Instituts Trykkeri, Aarhus Universitet Layout: Annette B. Andersen Submitted February 8, 2011 The public defense takes place May 3, 2011 Published April 2011 Forlaget Politica c/o Department of Political Science Aarhus University Bartholins Allé 7 DK-8000 Århus C Denmark Tel. +45 8942 1253 Fax +45 8613 9839 e-mail: [email protected] Table of Contents Acknowledgements ........................................................................................................................................................ 9 Chapter 1 Introduction .............................................................................................................................................. 13 1.1. Tax Policy Defined .................................................................................................................................. 18 1.2. Conventional Approaches to Tax Policy Formation and Reforms ............................ 22 1.3. Transnationalization of the Policy Arena: Do Ideas Matter in Tax Policy Formation? ........................................................................................................................................................... 25 1.4. Roadmap of the Dissertation ............................................................................................................ 26 Chapter 2 Ordering From the Menu of Conventional Explanations: Pros and Cons ................................................................................................................................................................................ 29 2.1. The Impact of External Forces on Domestic Policy Change ......................................... 30 2.2. Domestic Factors ..................................................................................................................................... 43 2.3. Summary ...................................................................................................................................................... 61 Chapter 3 Transnationalization of the Public Policy Arena: Why and How Do Ideas Matter in Policy Change? .............................................................................................................. 63 3.1. An Alternative Explanation: Transnationalization of a Public Policy Arena ......... 64 3.2. Phases of the Tax System Formation ........................................................................................... 66 3.3. Transnationalization Literature ........................................................................................................ 68 3.4. Ideas as Weapons for Change ....................................................................................................... 74 3.5. Mechanism of Idea Change: Policy Learning ........................................................................ 77 3.6. Policy Actors and Coalitions ............................................................................................................. 81 3.7. Institutions as Filters and the Need for Government Support ....................................... 83 Chapter 4 Methodological Choices and Research Design ................................................... 89 4.1. In-Depth Case Study of Georgia through Process Tracing ............................................ 90 4.2. Selection of Data Sources .................................................................................................................. 93 4.3. Semi-Structured Interviews ................................................................................................................ 96 4.4. Overall Validity of the Dissertation ................................................................................................ 99 Chapter 5 Georgian Tax Policy Making at the Dusk of the Soviet Regime ......... 101 5.1. What Does this Chapter Investigate? ...................................................................................... 101 5.2. Georgia’s Quest for Independence .......................................................................................... 103 5.3. Ideas Matter in Policy Change: True or False? ................................................................... 104 5.4. Policy Coalitions .................................................................................................................................... 108 5.5. Conditionality ......................................................................................................................................... 118 5.6. Domestic Structural Factors: Budget Deficit and Low Tax Level .............................. 121 5.7. Number of Veto Players and Party Politics ............................................................................ 126 5.8. Government Support ......................................................................................................................... 130 5.9. Institutional Filters ................................................................................................................................. 134 5.10. Tax Competition ................................................................................................................................ 140 5.11. EU as a Part of Idea Diffusion or External Force of Change ................................... 141 5.12. Summary ................................................................................................................................................ 143 5 Chapter 6 Georgian Tax Policy Making during the Period of Grand Reforms before the Rose Revolution ............................................................................................................................... 145 6.1. Political Dust Settling ... ...................................................................................................................... 146 6.2. Ideas ............................................................................................................................................................. 147 6.3. Policy Coalitions .................................................................................................................................... 155 6.4. IMF Conditionality ................................................................................................................................ 166 6.5. EU as a Policy Actor in Georgia ................................................................................................... 168 6.6. Tax Competition ................................................................................................................................... 170 6.7. Domestic Structural Factors: Budget Deficit and Low Tax Level .............................. 172 6.8. Number of Veto Players ................................................................................................................... 179 6.9. Institutional Filters ................................................................................................................................. 180 6.10. The Rose Revolution ........................................................................................................................ 182 6.11. Policy Making Mechanisms ......................................................................................................... 183 6.12. Summary ................................................................................................................................................ 184 Chapter 7 Georgian Tax Policy Making After the Rose Revolution ............................. 187 7.1. Political Processes Following the Rose Revolution ........................................................... 187 7.2. Ideas ............................................................................................................................................................. 188 7.3. Policy Coalitions .................................................................................................................................... 190 7.4. Government Support ......................................................................................................................... 193 7.5. Domestic Structural Factors: Budget Deficit and Low Level of Tax Collection ........................................................................................................................................................... 194 7.6. Number of Veto Players and Party Politics ............................................................................ 197 7.7. Conditionality ......................................................................................................................................... 200 7.8. EU as a Policy Actor ............................................................................................................................ 202 7.9. Formal and Informal Institutions .................................................................................................. 204 7.10. Tax Competition ...............................................................................................................................