An integral approach to evaluating the effectiveness of tax incentives

Julia A. Steshenko, Anna V. Tikhonova

Abstract


The article analyzes the prospects and opportunities for using integral indicators to evaluate the effectiveness of tax incentives. The following key indicators are selected: the integral index of 13 tax incentive indicators’ growth rate; the multidimensional mean calculated on the basis of trade turnover of the Eurasian Economic Union; a complex rating evaluation of the effectiveness of regional tax incentives. Tax incentive indicators are understood as those indices that best reflect the economic performance of companies in a certain business sector. The goal of the article is to determine the priority areas of using tax incentives based on the comparative theoretical analysis of integral indicators for evaluating their effectiveness. Research methodology includes the analysis of tax incentives’ indicators calculated on the basis of official statistics and characterizing budgetary, social and economic effectiveness. Besides, the authors use the instruments of the regression and correlation analysis. It is determined that the coefficient approach is best used to evaluate time oriented tax incentives, while the absolute approach –socially or spatially oriented tax incentives. The authors use their own methodology to prove that in 2011–2016 tax incentives for agriculture (from the industry-based perspective) and for research and development (from the target-based perspective) were effective. The use of the complex rating of tax incentives’ effectiveness at the regional level showed that high effectiveness was achieved only in two subjects of the Russian Federation, while absolute effectiveness was not achieved in any of them. At the same time, most regions stayed in the range of sufficient and low effectiveness. Research results can be used by the Ministry of Finance and the Government of the Russian Federation when developing ways of improving the taxation policy.

Highlights

1. The coefficient approach is most commonly used to evaluate tax incentives, although it is advisable to use the absolute approach through the calculation of the multidimensional mean for some social and territorial tax incentives

2. To analyze the effectiveness of tax incentives, the authors selected thirteen tax incentive indicators that reflect the social and economic development of an industry. They include budgetary revenues by tax type, the number of workplaces in the full-time equivalent, GVA, growth rate of investments in fixed assets, etc.

3. It is advisable to evaluate the effectiveness of the instruments of industry-based and target (specific) tax incentives by using the integral index of the tax incentive indicators’ growth rate

4. It is suggested that the multidimensional mean should be used to evaluate the impact of reduced tax rates on VAT and excise duties on the volume of trans-border trade of the Eurasian Economic Union countries

5. The regional tax policy of stimulating production should be evaluated through the complex rating of the effectiveness of regional tax incentives by using the instruments of the regression and correlation analysis

For citation

Steshenko J. A., Tikhonova A. V. An integral approach to evaluating the effectiveness of tax incentives. Journal of Tax Reform, 2018, vol. 4, no. 2, pp. 157–173. DOI: 10.15826/jtr.2018.4.2.050

Article info

Received July 1, 2018; accepted August 6, 2018

 

 


Keywords


Tax benefits, effectiveness criteria, tax incentives, multidimensional mean, integral index

References


Yang Z. Tax reform, fiscal decentralization, and regional economic growth: New evidence from China. Economic Modelling, 2016, no. 59, pp. 520–528. DOI: 10.1016/j.econmod.2016.07.020.
2. Kireenko A. P., Orlova Е. N. The Role of Tax Incentives in Promotion of Innovation Activity in the Russian Federation. In: 13th International scientific-technical conference on actual problems of electronic instrument engineering proceedings (APEIE 2016). Novosibirsk, 2016. Vol. 1, Part 3, pp. 242–247.
3. Mayburov I. Evaluation of tax expenditures and tax effectiveness: methodology of problem solving. Obshchestvo i ekonomika = Society and Economy, 2013, no. 4, pp. 71–91. (In Russ.).
4. Mayburov I. A., Ivanov Yu. B. (eds) Nalogovye l’goty. Teoriya i praktika primeneniya [Tax benefits. Theory and practice of application]. Moscow: UNITY-DANA Publ., 2015. 488 p.
5. Musaeva K. M., Suleimanov M. M., Isaeva S. M., Pinskaya M. R. Improvement of the efficiency of the instruments of tax regulation in the context of the development of fiscal federalism and strengthening of the taxable capacity of the subjects of the Russian Federation. Ecology, Environment and Conservation Paper, 2015, vol. 21, Suppl. Issue, pp. 71–80.
6. Panskov V. G. Tax benefits: theory and practice. Ekonomika. Nalogi. Pravo = Economics, Taxes. Law, 2016, no. 1, pp. 119–125 (In Russ.)
7. Easson A., Zolt E. M. Tax incentives. Washington, World Bank Institute, 2002.
8. Lykova L. N. Regional component of tax policy: ways to support economic growth. Problemy razvitiya territorii = Problems of Territory’s Development, 2018, no. 2, pp. 71–86. DOI: 10.15838/ptd/2018.2.94.5. (In Russ.)
9. Chirinko R. S., Wilson D. J. State investment tax incentives: A zero-sum game? Journal of Public Economics, 2008, Vol. 92, iss. 12, pp. 2362–2384. DOI: 10.1016/j.jpubeco.2008.07.005.
10. Smith A. On the revenue of the sovereign or commonwealth. In: Smith A. An Inquiry into the Nature and Causes of the Wealth of Nations. On the income of a sovereign or state. MetaLibri Digital, 2007. Book 5, p. 535–740. Available at: https://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf.
11. Rumina U. A., Balandina A. S., Bannova K. A. Evaluating the Effectiveness of Tax Incentives in Order to Create a Modern Tax Mechanism Innovation Development. Procedia — Social and Behavioral Sciences, 2015, vol. 166, pp. 156–160. DOI: 10.1016/j.sbspro.2014.12.502.
12. Junxue Jia, Guangrong Ma. Do R&D tax incentives work? Firm-level evidence from China. China Economic Review, 2017, vol. 46, pp. 50–66. DOI: 10.1016/j.chieco.2017.08.012.
13. Yang Ch.-H., Huang Ch.-H., T. Hou Ch.-T. Tax incentives and R&D activity: Firm-level evidence from Taiwan. Research Policy, 2012, vol. 41, iss. 9, pp. 1578–1588. DOI: 10.1016/j.respol.2012.04.006.
14. Crespi G., Giuliodori D., Giuliodori R., Rodriguez A. The effectiveness of tax incentives for R&D+i in developing countries: The case of Argentina. Research Policy, 2016, vol. 45, iss. 10, pp. 2023–2035.
15. Houndonougbo A. N., Mohsin M. Macroeconomic effects of cost equivalent business fiscal incentives. Economic Modelling, 2016, vol. 56, pp. 59–65. DOI: 10.1016/j.econmod.2016.03.015.
16. Alvarez Ayuso I. C., Kao C., Romero-Jordánc D. Long run effect of public grants and tax credits on R&D investment: A non-stationary panel data approach. Economic Modelling, 2018. DOI: 10.1016/j.econmod.2018.06.011.
17. Shafiei E., Davidsdottir B., Leaver J., Stefansson H., Asgeirsson E. I., Keith D. R. Analysis of supplypush strategies governing the transition to biofuel vehicles in a market-oriented renewable energy system. Energy, 2016, vol. 94, pp. 409–421. DOI: 10.1016/j.energy.2015.11.013.
18. Piciu G. C., Trică C. L. Assessing the Impact and Effectiveness of Environmental Taxes. Procedia Economics and Finance, 2012, vol. 3, pp. 728–733. DOI: 10.1016/S2212-5671(12)00221-3.
19. Kok R. Six years of CO2-based tax incentives for new passenger cars in The Netherlands: Impacts on purchasing behavior trends and CO2 effectiveness. Transportation Research Part A: Policy and Practice, 2015, vol. 77, pp. 137–153. DOI: 10.1016/j.tra.2015.04.009.
20. Mandroshchenko O. V. Principal approaches to evaluating the efficiency of tax benefits. Finansovaya analitika: problemy i resheniya = Financial Analytics: Problems and Solutions, 2016, no. 39, pp. 45–60 (In Russ.)
21. Igonina L. L., Mamonova I. V. Stimulating tax privileges as an instrument of fiscal regulation: features of application and evaluation of efficiency at the regional level. Bukhgalterskii uchet v byudzhetnykh i nekommercheskikh organizatsiyakh = Accounting in budgetary and non-profit organizations, 2017, no. 4, pp. 38–50. (In Russ.)
22. Mayburov I., Sinenko O. Classification of Risks Associated With Operation of Special Economic Zones. In: Proceedings of the 30th International Business Information Management Association Conference, IBIMA 2017 — Vision 2020: Sustainable Economic development, Innovation Management, and Global Growth, 2017, Vol. 2017, pp. 819–826.
23. Sidorova E. Improvement the methods of tax regulation mechanism effectiveness assessment in the Russian Federation. Economic Annals-XXI, 2015, no. 11–12, pp. 47–50. (In Russ.)
24. Okun A. S., Steshenko Yu. A. Improving the Approaches to the Tax Incentives Efficiency Evaluation in the Russian Federation. Mezhdunarodnyi bukhgalterskii uchet = International Accounting, 2018, vol. 21, no. 3, pp. 297–311. DOI: 10.24891/ia.21.3.297. (In Russ.)
25. Kireenko A. P., Orlova E. N. The role of tax incentives in promotion of innovation activity in the Russian Federation. In: 13th international scientific technical conference on actual problems of electronic instrument engineering<-em>. Novosibirsk, 2016, vol. 3, pp. 242–246. DOI: 10.1109/APEIE.2016.7807063.
26. Sidorova E., Tikhonova A. Assessment of the fiscal effect of the tax reform options until 2019: the case of Russia. Economic Annals-XXI, 2017, vol. 164, no. 3–4, pp. 45–48. DOI: 10.21003/ea.V164-10.
27. Pinskaya M. R., Melnichuk M. V., Frumina S. V., Tikhonova A. V. Problems of creating a favorable investment climate in Russian regions. International Journal of Economics and Financial Issues, 2016, vol. 6, no. 8, Special Issue, pp. 300–306.




DOI: http://dx.doi.org/10.15826/jtr.2018.4.2.050

Copyright (c) 2018 Julia A. Steshenko, Anna V. Tikhonova

eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

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