Determinants of tax incentives for investment activity of enterprises

Viktor V. Ivanov, Nadezhda A. Lvova, Natalia V. Pokrovskaia, Svetlana V. Naumenkova

Abstract


The article is devoted to the problematic issues of tax incentives for Russian companies. The main prerequisite of the research is that the domestic practice of tax incentives does not meet the interests of the state, since it is in clear contradiction with the declared principles of economic development. The provided tax privileges should promote the investment activity of business. However, tax incentives are often offered to those enterprises that are not able to use them effectively. Justification of tax benefits requires identifying enterprise’s investment activity factors, the level of which is largely determined by the corporate life cycle stage and industry specificity. Hypotheses about the importance of corporate age and economic activity, formulated for the purposes of this study, have been empirically confirmed. It was proved that the investment activity of Russian enterprises demonstrated different dynamics in the conditions of the economic crisis. In the manufacturing industry, in particular, most enterprises increased the volume of fixed assets, while in the spheres of petroleum products, dairy products, chemical products, communications on the basis of wire technologies, there was a decline in investment activity. The change in investment activity in the period under study was due to various factors for both enterprises of different industries and enterprises of the same industry characterized by different corporate ages. The results obtained let us conclude that a unified approach to tax incentives for enterprises’ investment activity cannot be justified. In the opinion of the authors, “targeted” tools of tax incentives are more efficient.

Highlights 

1. Tax incentives should meet the interests of the state, contributing to the development of the economy. However, in Russia it is increasingly reduced to tax benefits, which increase in volume, but do not bring the desired effect, including the fact that they do not contribute to the growth of investment activity of enterprises

2. It was revealed that the investment activity of the enterprise depends to a significant extent on the stage of the life cycle and industry specificity, which, in the opinion of the authors, should be considered as the determinants of tax incentives. Accordingly, the authors offer the hypotheses about the importance of the corporate age and the sphere of financial and economic activity in shaping the factors of Russian enterprise investment activity

3. Investment activity models for young, adult and old manufacturing enterprises, as well as companies for the manufacture of coke and refined petroleum products, dairy products, chemicals and chemical products, and communications based on wire technologies have been constructed. It is shown that these models have independent significance, and the factors of investment activity really depend on the corporate age and industry specificity

4. Thus, it is argued that the system of tax incentives in Russia requires development: we should abandon unsystematic tax incentives in favor of target instruments that take into account the financial characteristics of the taxpayer more flexibly

For citation 

Ivanov V. V., Lvova N. A., Pokrovskaia N. V. Naumenkova S. V. Determinants of tax incentives for investment activity of enterprises. Journal of Tax Reform, 2018, vol. 4, no. 2, pp. 125–141. DOI: 10.15826/jtr.2018.4.2.048

Article info 

Received June 9, 2018; accepted July 22, 2018



Keywords


Налоговое стимулирование, налоговые льготы, инвестиционная активность, инвестиции, жизненный цикл организации

References


Mayburov I. A., Ivanov Yu. B. (ed.) Nalogovye lgoty. Teoriya i praktika primeneniya [Tax benefits. Theory and practice of application]. Moscow, UNITYDANA Publ., 2014. 487 p.
2. Mayburov I.A. The problem of identification and assessment of tax expenditures: a methodological approach to solving. Problemy ekonomiki = Problems of Economics, 2012, no 4, pp. 187–193. (In Russ.)
3. Tax Expenditures in OECD Countries. Paris, OECD Publishing, 2010. 242 p. DOI: 10.1787/9789264076907-en.
4. Klemm A. Causes, Benefits and Risks of Business Tax Incentives. Washington, D.C., International Monetary Fund, 2009. 28 p.
5. Polackova H., Valenduc H., Swift Ch., Li Zh. Tax Expenditures — Shedding Light on Government Spending through the Tax System. Lessons from Developed and Transition Economies. Washington, D.C., World Bank, 2004. 264 p. Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/15067/275830PAPER0Tax0expenditures.pdf?sequence=1/.
6. Holland D., Vann R. J. Income tax incentives for investment. Tax Law and Drafting, 1998, vol. 2, pp. 986–1020.
7. Easson A., Zolt E. Tax Incentives. Washington, D.C., World Bank, 2002. 35 p.
8. Malinina T. A. Otsenka nalogovykh lgot i osvobozhdenii: zarubezhnyi opyt i rossiiskaya praktika [Assessment of tax benefits and exemptions: foreign experience and Russian practice]. Moscow, Gaydar University, 2010. 212 p.
9. Hall R., Jorgenson D. Tax policy and investment behavior. The American Economic Review, 1967, vol. 57, no. 3, pp. 391–414.
10. Tobin J. A General equilibrium approach to monetary theory. Journal of Money, Credit, and Banking, 1969, vol. 1, no. 1, pp. 15–29.
11. Eisner R. Tax policy and investment behavior: further comment. The American Economic Review, 1970, vol. 60, no. 4, pp. 746–752.
12. Hayashi F. Tobin’s marginal q and average q: a neoclassical interpretation. Econometrica, 1982, vol. 50, no. 1, pp. 213–224. DOI: 10.2307/1912538.
13. Djankov S., Ganser T., McLiesh C., Ramalho R., Shleifer A. The effect of corporate taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics, 2010, vol. 2, no. 3, pp. 31–64. DOI: 10.1257/mac.2.3.31.
14. Hassett K., Newmark K., Taxation and business behavior: a review of the recent literature. In: Diamond J., Zodrow G. (eds) Fundamental Tax Reform: Issues, Choices and Implications. Cambridge, MIT Press, 2008, pp. 191–214.
15. Cummins J. G., Hassett K. A., Hubbard R. G. A reconsideration of investment behavior using tax reforms as natural experiments. Brookings papers on Economic Activity, 1994, vol. 2, no. 2, pp. 1–74.
16. Cummins, J. G., Hassett, K. A., Hubbard, R. G. Tax reforms and investment: a cross-country comparison. Journal of Public Economics, 1996, vol. 62, no. 1-2, pp. 237–273.
17. Hanlon M., Heitzman Sh. A review of tax research. Journal of Accounting and Economics, 2010, no. 50, pp. 127–178. DOI: 10.1016/j.jacceco.2010.09.002.
18. Zwick E., Mahon J. Tax policy and heterogeneous investment behavior. American Economic Review, 2017, vol. 107, no. 1, pp. 217–248. DOI: 10.1257/aer.20140855.
19. Ohrn E. The effect of corporate taxation on investment and financial policy: evidence from the DPAD. American Economic Journal: Economic Policy, 2018, vol. 10, no. 2, pp. 272–301. DOI: 10.1257/pol.20150378.
20. Mishchenko S. V. The impact of the financial crisis on the implementation of the monetary policy by central banks. Aktualnye problemy ekonomiki = Actual Problems of Economics, 2009, no. 9, pp. 209–218. (In Russ.)
21. Lvova N. A., Pokrovskaya N. V., Ivanov V. V. Socially oriented taxation and how it is perceived (case study of a survey of economists-to-be). Economic and Social Changes: Facts, Trends, Forecast, 2017, no. 4, pp. 196–211. DOI: 10.15838/esc.2017.4.52.11.
22. Pinskaya M. R. Approaches to understanding the tax equity. Journal of Tax Reform, 2015, no. 1, pp. 90–100. (In Russ.)
23. Pokrovskaia N. V., Sokolov B. I., Ivanov V. V. Tax reforms for sustainable economic growth of the national economy: case of China. In: Innovation Management and Education Excellence Vision 2020: from Regional Development Sustainability to Global Economic Growth. Proceedings of the 27th IBIMA conference. Milan, 2016, pp. 429–439.
24. Ivanov V. V., Pokrovskaia N. V., Lvova N. A. Tax potential of a state: development factors. In: J. Alver (ed.) Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016). Tallinn, 2016, pp. 139–145. DOI: 10.2991/icaat-16.2016.15.
25. Jolley J., Lancaster M., Gao J. Tax incentives and business climate: executive perceptions from incented and nonincented firms. Economic Development Quarterly, 2015, vol. 29, no. 2, pp. 180–186. DOI: 10.1177/0891242415571127.
26. Mayoral J., Segura A. Taxes as determinants of corporate investment: empirical evidence in Spanish private firm. Revista de Contabilidad = Spanish Accounting Review, 2017, vol. 20, no. 2, pp. 195–209.
27. Auerbach A., Hines Jr. Investment tax incentives and frequent tax reforms. The American Economic Review, 1988, vol. 78, no. 2, pp. 211–216. DOI: 10.3386/w2492.
28. Novaya filosofskaya entsiklopediya [New philosophical encyclopedia]. Moscow, 2010. Available at: http://iph.ras.ru/elib/2200.html
29. Kuzmin E. A. Risk and uncertainty in the corporate life cycle concept. Izvestiya Uralskogo gosudarstvennogo ekonomicheskogo universiteta = Journal of the Ural State University of Economics, 2017, no. 1, pp. 29–46. (In Russ.)
30. Fedorova E. A., Persidskaya E. Yu. Investigation of the influence of internal factors on the capital structure at different stages of the life cycle of Russian companies. Finansy i kredit = Finance and Credit, 2016, no. 42, pp. 2–12. (In Russ.)
31. Fedorova E. A., Persidskaya E. Yu. Investigation of the influence of internal and external factors on the capital structure at different stages of the life cycle of Russian companies. Finansovaya analitika: problemy i resheniya = Financial Analytics: Problems and Solutions, 2017, vol. 1, no. 5, pp. 482–492. DOI: 10.24891/fa.10.5.482. (In Russ.)
32. Frank M., Goyal V. Capital structure decisions: which factors are reliably important? Financial Management, 2009, vol. 38, no. 1, pp. 1–37. DOI: 10.1111/j.1755-053X.2009.01026.x.
33. Pfaffermayr M., Stöckl M., Winner H. Capital structure, corporate taxation and firm age. Fiscal Studies, 2013, no. 34, no. 1, pp. 109–135. DOI: 10.1111/j.1475-5890.2013.00179.x.
34. Castro P., Tascon M. T., Amor-Tapia B. Dynamic Analysis of capital structure in technological firms based on their life cycle stages. Revista de Contabilidad = Spanish Accounting Review, 2015, vol. 44, no. 4, pp. 458–486.
35. Jenkins D. S., Kane G. D., Velury U. The impact of the corporate life cycle on the value relevance of disaggregated earnings components. Review of Accounting and Finance, 2004, vol. 3, no. 4, pp. 5–20. DOI: 10.1108/eb043411.
36. Sharifabadi A. A., Baniasadi M. The effect of life cycle on the relationship between financing approaches and firm value. Indian Journal of Fundamental and Applied Life Sciences, 2014, no. 4 (S1), pp. 2025–2035.
37. Dickinson V. Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 2011, vol. 86, no. 6, pp. 1969–1994. DOI: 10.2308/accr-10130.
38. Partin I. M., Vasin A. D. The impact of the company’s life cycle stage on the likelihood of its entry into the M & A transaction in emerging capital markets. Korporativnye finansy = Corporate Finance, 2014, no. 3, pp. 3–15. (In Russ.)
39. Vylkova E. S. Entsiklopediya upravleniya nalogooblozheniem ekonomicheskikh sub”ektov [Encyclopedia of economic entities taxation management]. Vol. 1. Saint Petersburg, 2017. 338 p.
40. Mayburov I. A. (ed.) Nalogovaya politika. Teoriya i praktika [Tax policy. Theory and practice]. Moscow, UNITYDANA Publ., 2010. 519 p.
41. Stangl J., Jacobsen B., Visaltanachoti N. Sector Rotation over Business Cycles. 34 p. Available at: https://www.researchgate.net/publication/228425439_Sector_rotation_over_ business-cycles.
42. Anthony J., Ramesh K. Association between accounting performance measures and stock prices — a test of the life cycle hypothesis. Journal of Accounting and Economics, 1992, vol. 15, no. 3, pp. 203–207. DOI: 10.1016/0165-4101(92)90018-W.




DOI: http://dx.doi.org/10.15826/jtr.2018.4.2.048

Copyright (c) 2018 Viktor V. Ivanov, Nadezhda A. Lvova, Natalia V. Pokrovskaia, Svetlana V. Naumenkova

eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

© Journal of Tax Reform : ISSN 2414-9497 (online), ISSN 2412-8872 (print)