of recent legislation intended to protect shareholders _(Law on Joint-Stock Companies,_ Jan. 1996; _Privatization Law,_ July 1997). In those cases where i:here is significant residual shareholding by the state, there is often tacit cooperation between governmental representatives on supervisory boards and management opposed to takeovers, to the consolidation of outsider ownership, or to the enforcement of ownership prerogatives of outsiders. These, of course, are long-standing allegations for which systematic evidence is difficult to marshal. Several incidents of managerial obstruction, foot-dragging, and non-compliance have been detailed.<sup>2</sup> '

# **Tax Arrears and Offsets** as **Subsidies**

For the largest Russian enterprises, tax payments have been bargained _ex post._ Tax payments with goods and through the use of offsets have allowed firms to economize on cash payments to tax authorities. Domestically, these finns have been driven further into the barter economy to avoid leaving a cash trail for the state to pick up. Since the Regional Governments have been unwilling to enforce the liquidation of insolvent firms, profitable companies as well are encouraged to masquerade as bankrupt ones. Thus both profitable and insolvent Russian firms have incentives to avoid taxes.

The fact that goods used to pay taxes may not have an iramediate use constitutes an implicit subsidy granted by the tax collector to the firm, and may explain their increasing use among regional governments interested in maintaining employment levels and the social benefits that firms grant employees. Moreover, bartered goods, in-kind payments, and promissory notes are usually greater in price than their cash equivalents<sup>2 2</sup> . Pricing non-cash instruments at a premium can serve as an implicit subsidy. Tax authorities issuing tax offset notes are often complicit with inflated pricing since it enables the state, similarly, to increase its revenues. The managers are interested in inflating revenues as it magnifies the perceived "size" of the enterprise, which may prove useful as the firm bargains with regional governments.

# **Regional Governments and Enterprise Restructuring**

Incumbent-managers of loss-making enterprises may have given up on the longterm route of deriving wealth through increasing the value of the enterprise. Selling their shares is a limited option because of the costliness of exchanging ownership rights in the Russian economy. While the rational short-term strategy of the managers-owners is asset stripping, then, the longer-run strategy is under-utilization of the remaining assets, barter and accumulation of arrears, in order to maintain employment levels in their regions. This last incentive, additionally, explains the liberal forbearance granted by tax authorities-regional and federal-towards enforcing tax debt collection from these

> 21 Juliet Johnson, "Russia's Emerging Financial-Industrial Groups,' _Post-Soviet Affairs_ 13, 4 (1997): .333365; Bernard Black, Reiner Kraakman, and Anna Tarasova, "Russian Privatization and Corporate Governance: What Went Wrong?" (mimeo, 1999).

22 According to Commander and Mumssen (1998, p. 18), in addition, the fact that goods used to pay taxes may not have an imnmediate use constitutes an implicit subsidy granted by tde tax collector to the firm.

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