Can Russia Survive Economic Sanctions?

Seth Benzell () and Guillermo LaGarda

Asian Economic Papers, 2017, vol. 16, issue 3, 78-120

Abstract: Motivated by recent events, we study the welfare impact of extreme sanctions regimes on Russia. To do so, we model the demographic and fiscal transitions 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. This paper investigates the most dramatic sanctions possible, forcing Russia into long-term autarky under a variety of scenarios. The scenarios differ with regard to the sanction's effect on the energy sector, labor productivity, and the enactment of Russian capital controls. We find that elderly Russians are hurt the most by sanctions. When Russia seizes foreign assets, this is in part because of lower interest rates on the assets of retirees. When the sanctions also reduce Russian government energy revenues, the elderly are hurt through increased consumption taxation. In all scenarios but the most benign, all existing generations are made worse off.

JEL-codes: F33 F36 F50 F65 G00 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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