Young Scholar Explores the Effect of Weak Institutions on Support for Social Policy

On January 26, Israel Marques, Post-Doctoral Research Fellow at the HSE International Centre for the Study of Institutions and Development, delivered a lecture at HSE St. Petersburg entitled ‘Institutional Qualities and Individual Preferences in Social Policy’. Following the lecture, he agreed to speak with the HSE news service about his research interests, his time at HSE and his experience living and working in Russia.

— How did your cooperation with HSE begin?

— I began working at HSE in 2011 when I was a graduate student. My adviser at Columbia University, Timothy Frye, and Professor Andrei Yakovlev at HSE were creating the International Centre for the Study of Institutions and Development with the help of funding from HSE and the Russian government. I was invited to join as a research fellow and have been working at HSE ever since.

— How did you use a survey covering 28,000 individuals in 28 post-communist countries and 666 Russian companies in your dissertation? What is the main thesis you advance in your latest paper?

— Broadly, my dissertation looks at the question of who actually supports social policies — healthcare, unemployment insurance, pensions — and why. I focus on what happens in settings with weak governance and rule of law. Most of what we know about social policy comes from Europe or the US, where policy change can alter social policies but where there are few problems with corruption, rule of law, or collecting taxes.

What happens when there is less control over government officials and it becomes harder to be sure that taxes are collected and benefits distributed as written in the law? I look at this question both from the standpoint of firms and of individuals in the dissertation. This is an important question, because social policies are fundamental to the economic life: they provide protection for individuals during hard times and help firms shape the labour market.

This paper looks at a small part of my dissertation argument: if countries with bad institutions make tax evasion easier, how does that change how people feel about redistributive programmes like universal healthcare? The argument specifically focuses on those who can more easily evade taxes and shows how these groups will support social policy because they can pass the costs onto others. Using statistical tools, I can check whether the ability to evade taxes is actually driving opinion once we account for other important factors like age, education, income, etc. In my dissertation I do the same thing for firms using a survey of firms.

I think that for any expert the advantage of living in Russia is that there is a real hunger for skill and expertise. At least in academia, this results in a lot of opportunities to be entrepreneurial and to find partners to work on interesting projects. HSE's international laboratories are a perfect example of how this works in practice

— You have spent quite a lot of time researching Russian pension reform. Now the reform is being revised again and new rules have been introduced. How do you see the results of pension reform and the situation with Russian pensioners?   

— Unfortunately, it is hard to say. The government has a long history of modifying the pension system and has gone through a lot of different proposals in the last few years. Unfortunately, there is no real guarantee that more changes are not incoming due to worsening budget deficits. I think this constant stream of changes is one of the biggest problems for the Russian pension system right now.

For workers, these changes make it hard to understand how pension contributions paid today will result in benefits tomorrow. Even experts are having trouble calculating their future pensions! The problem is made worse, because the government keeps announcing temporary freezes on transfers of contributions to private pension funds, making it unclear if the pension system will still exist in its current form in a couple of years.

Workers’ expectations about pensions are important, because it shapes how actively they try to get their employers to pay social contributions. There are already widespread reports going back many years that employers regularly evade social policy contributions. Constant changes in the law erode employee confidence in the pension system, which makes employees even less likely to make sure their employers are paying social taxes. This likely will exacerbate pre-existing tax evasion. Tax evasion in turn makes the deficit even worse, which hurts current pensioners. While the government should definitely be commended for trying to make pensions sustainable, constant tinkering with the system means that even if the government solves the fiscal problem it will create a crisis in confidence that might be almost as bad.

The international experts on the team bring sophisticated statistical methodology and international theory to the table, but we would never get anywhere without the Russian experts who understand the regions' specifics and who are able to help us put together the data and figure out how our theory should apply to Russia

— What's next on your research plate?

— Next up are two projects. The first with some colleagues at the University of Colorado-Boulder continues the work of my latest paper by looking at how individuals react to different problems with social policy in a laboratory setting. We have a group of students performing a task for pay and then paying taxes that then get redistributed to simulate some types of social policy. We experimentally manipulate how easy it is for people to hide income and see how this effects both the amount of work they are willing to perform and their preferred tax rates. This helps us to both get at whether ease of tax evasion drives preferences and at related questions about how these possibilities shape the preferences of the “rich” and “poor”.

The second project is a bit different and looks at how and when public-private partnerships emerge between business and the government to solve problems of common interest. We study this question specifically through the lens of vocational education reform in Russia's regions. The inability to find qualified workers is one of the biggest problems faced by Russian business today, but there is a lot of variation across the regions both in the extent of the problem and the willingness of regional governments to try to help solve it. What explains this? We are building a database that contains all of the public-private contracts signed between over 2,000 secondary vocational education schools across all of Russia's regions and regional businesses to find out. We hope this work offers both some interesting theoretical conclusions and some concrete recommendations on how to encourage regions to reform vocational education and form cooperative partnerships with businesses. Both of these would be good for economic and industrial development in the regions. 

Despite its size, HSE provides motivated students with opportunities for interaction that are hard to find even in small programmemes

— How is living and working in Russia going for you? What are some of the greatest opportunities and challenges for an international expert here now?

— I have been living in Russia for almost three years now, so I would say that it’s going pretty well!

I think that for any expert (international or domestic) the advantage of living in Russia is that there is a real hunger for skill and expertise. At least in academia, this results in a lot of opportunities to be entrepreneurial and to find partners to work on interesting projects. HSE's international laboratories are a perfect example of how this works in practice.

Through my laboratory (ICSID), I have found lots of opportunities for collaboration that combine international expertise and best-practices with on-the-ground knowledge of Russia to produce some truly interesting projects. The project on public-private partnerships in vocational education reform that I described before is a perfect example. The international experts on the team bring sophisticated statistical methodology and international theory to the table, but we would never get anywhere without the Russian experts who understand the regions' specifics and who are able to help us put together the data and figure out how our theory should apply to Russia.

As a Brazilian, I have to say that the climate is a bit of a disadvantage, but the pluses of the country more than make up for it.

— What would you say to international students who might be interested in coming to study at HSE?

— Despite its size, HSE provides motivated students with opportunities for interaction that are hard to find even in small programmemes. I went to a small liberal arts college as an undergraduate and even in my programme there the level of faculty-student interaction was lower than I’ve seen at HSE! The opportunity to work with faculty on collaborative projects or supervised research is a huge benefit to your professional development, even if you do not want to pursue an academic research career. Working on these sorts of projects provides valuable skills related to identifying problems, figuring out how to study them, carrying out the work, and arriving at defendable conclusions. It may seem simple, but it is surprising how rare these skills are in the corporate or government world and how highly in demand.

All views expressed in this interview are Dr. Marques’ personal views and do not represent the official position of the Higher School of Economics.

Anna Chernyakhovskaya, specially for HSE News Service