Can Russia Survive Economic Sanctions?

32 Pages Posted: 24 Jan 2017

See all articles by Guillermo Lagarda

Guillermo Lagarda

Global Development Policy Center Boston University

Date Written: January 6, 2017

Abstract

Motivated by recent events, this paper studies the welfare impact of extreme sanctions regimes on Russia. To do so, it models the demographic and fiscal transition of the Russian Federation under free trade and autarky. Unlike previous studies of sanctions, our paper utilizes a large scale overlapping generations model with productivity growth, demographic change, region-specific policies, and an energy sector. This model is uniquely suited to understanding the long term impacts of different trade and fiscal regimes. Consequently, this paper investigates the most dramatic sanctions possible, forcing Russia in to long term autarky, under a variety of scenarios. It is consider the role of Russian capital controls as a response to sanctions as well as impacts on labor productivity and the energy sector. The paper finds that older currently living Russian generations are hurt the most by the sanctions. When Russia seizes foreign assets, this is in part due to lower interest rates on the assets of retirees. When the sanctions also reduce Russian government energy revenues, the old are hurt through increased consumption taxation. In all scenarios but the most benign, all generations currently living are made worse off.

Keywords: Corporate Income Tax, Tax Reform, Demographic Transition, Overlapping Generations (OLG), Computable General Equilibrium Models (CGE), Wage Inequality, Pareto Improvements, Fossil Fuels, Sanctions, Autarky

JEL Classification: F0, F20, H0, H2, H3, J20

Suggested Citation

Lagarda, Guillermo, Can Russia Survive Economic Sanctions? (January 6, 2017). Available at SSRN: https://ssrn.com/abstract=2903533 or http://dx.doi.org/10.2139/ssrn.2903533

Guillermo Lagarda (Contact Author)

Global Development Policy Center Boston University ( email )

53 Bay State Road
Boston, MA 02215
United States

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