Evaluation of Russian Economic Sectors’ Sensitivity to Tax Burden

Evgeny V. Balatsky, Natalia A. Ekimova

Abstract


This study tests the hypothesis that Russia’s economic sectors have different sensitivity to tax burden. Econometric models are built to explore the relationship between production in different sectors and the tax burden on these sectors. We use employment growth, labour productivity growth and world oil prices growth as control variables; to neutralize crisis effects we introduced a binary dummy variable. A peculiar feature of our models is that we build a certain a priori non-linear fiscal aggregate, which appears as one variable in an econometric dependency and comprises one or two exogenous parameters. This enables us to test the hypothesis about the non-linear impact of tax burden on production and to avoid the multicollinearity problem. The parameter of the non-linear fiscal aggregate can take different values as we build the econometric dependency, which means that we can conduct a lot of computational experiments to choose the most adequate model. The econometric models use statistical data of Rosstat and the Federal Tax Service of Russia for the period of 1996–2019 for the whole economy and for the period of 2006–2019 for specific sectors. For this study we have chosen the manufacturing and extractive industries, manufacture of coke and refined petroleum products, chemical industry and electrical engineering. To gain a bigger picture, we have also considered the public service sector– education and health care. Model calculations have shown that the main indicator reflecting the sectors’ sensitivity to tax regulation is the width of the corridor of permissible values of the tax burden in the parabolic dependency (permissible in the meaning that such tax burden provides a positive production growth in the sector): ∆q = q00 – q0. The lower is ∆q, the more sensitive is this sector to any tax increase. The use of additional indicators – q (effective tax burden), q* (optimal tax burden) and l* (potential production growth if the tax burden is optimal)– has shown that the more technologically advanced is the sector, the more sensitive it is to the tax burden. Moreover, the more technologically advanced is the sector and the more sensitive it is to fiscal regulation, the faster its development can be, provided that the tax rates are optimal. Thus, a possible solution is to apply a differentiated taxation system for economic sectors. All developed countries apply progressive personal income tax scales, which shows awareness of the differences in income groups’ sensitivity to taxes. Theoretically, nothing could be said against applying a similar principle to economic sectors with different levels of technological intensity and innovation and with a different sensitivity to tax burden. A differentiated tax system can be applied for economic sectors if certain conditions are met and specific procedures are established and followed.

For citation

Balatsky E.V., Ekimova N.A. Evaluation of Russian Economic Sectors’ Sensitivity to Tax Burden. Journal of Tax Reform. 2020;6(2):157–179. DOI: 10.15826/jtr.2020.6.2.080. 

Article info

Received June 22, 2020; Revised July 14, 2020; Accepted July 21, 2020


Keywords


Tax burden, economic growth, Laffer curve, sector-specific analysis

References


Myles G.D. Taxation and Economic Growth. Fiscal Studies. 2000;21(1):141–168. DOI: 10.1111/j.1475-5890.2000.tb00583.x.

Andrasic J., Kalas B., Mirovic V., Milenkovic N., Pjanic M. Econometric Modelling of Tax Impact on Economic Growth: Panel Evidence from OECD Countries. Economic Computation and Economic Cybernetics Studies and Research. 2018;52(4):211–226. DOI: 10.24818/18423264/52.4.18.14.

Ihendinihu J.U., Jones E., Ibanichuka E.A.L. Assessment of the Long-Run Equilibrium Relationship between Tax Revenue and Economic Growth in Nigeria: 1986 to 2012. The SIJ Transactions on Industrial, Financial & Business Management (IFBM). 2014;2(5):39–47. DOI: 10.9756/SIJASREE/V2I5/0202120102.

Barro R.J. Government spending in a simple model of endogenous growth. Journal of Political Economy. 1990;98(5-2):S103–S125. DOI: 10.1086/261726.

Wanniski J. Taxes, revenues, and the “Laffer curve”. The Public Interest. 1978;(50):3–16. Available at: https://nationalaffairs.com/storage/app/uploads/public/58e/1a4/c54/58e1a4c549207669125935.pdf.

Laffer A.B., Seymour J.P. The Economics of the Tax Revolt: a reader. N.Y.: Harcourt Brace Jovanovich; 1979. 138 p.

Laffer A.B. Government Exactions and Revenue Deficiencies. Cato Journal. 1981;(1):1–21. Available at: https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1981/5/cj1n1-1.pdf.

Laffer A.B. The Laffer Curve: Past, Present, and Future. The Heritage Foundation. 2004;(June 1):1765. Available at: https://www.heritage.org/taxes/report/the-laffer-curve-past-present-and-future.

Canto V.A., Joines D.H., Laffer A.B. Tax Rates, Factor Employment, and Market Production. The Supply-side Effects of Economic Policy. Economic Policy Conference Series. 1981;1:3–32. DOI: 10.1007/978-94-009-8174-4_1.

Puljic M. The Application of the Laffer Curve Approach in the Problem of Indebtedness. Available at: http://textfeld.ac.at/pdf/1120.pdf.

Papava V. Laffer’s Effect with After-Action. Mirovaya ekonomika i mezhdunarodnye otnosheniya = World Economy and International Relations. 2001;(7):34–39. (In Russ.)

Stuart C.E. Swedish Tax Rates, Labor Supply and Tax Revenues. Journal of Political Economy. 1981;89(5):1020–1038. DOI: 10.1086/261018.

Feige E.L., McGee R.T. Sweden’s Laffer Curve: Taxation and the Unobserved Economy. The Scandinavian Journal of Economics. 1983;85(4):499–519. DOI: 10.2307/3439948.

van Ravestein A., Vijlbrief H. Welfare Cost of Higher Tax Rates: An Empirical Laffer Curve for the Netherlands. De Economist. 1988;136:205–219. DOI: 10.1007/BF01238621.

Heijman W.J.M., Ophem J.A.C. Willingness to Pay Tax: The Laffer Curve Revisited for 12 OECD Countries. The Journal of Socio-Economics. 2005;34(5):714–723. DOI: 10.1016/j.socec.2005.07.013.

Strulik H., Trimborn T. Laffer Strikes Again: Dynamic Scoring of Capital Taxes. European Economic Review. 2012;56(6):1180–1199. DOI: 10.1016/j.euroecorev.2012.05.002.

Trabandt M., Uhlig H. The Laffer Curve Revisited. Journal of Monetary Economics. 2011;58(4):305–327. DOI: 10.1016/j.jmoneco.2011.07.003.

Lin B., Jia Z. Tax Rate, Government Revenue and Economic Performance: A Perspective of Laffer Curve. China Economic Review. 2019;56:101307. DOI: 10.1016/j.chieco.2019.101307.

Hearne A.I., Svidnytskyy T.I. Modeling Effect in Economics Laffer Ukraine Industrial and Institutional Functions. Financial and Credit Activity: Problems of Theory and Practice. 2013;(1):115–123. (In Ukr.)

Gusakov S.V., Zhak S.V. Optimal Equilibrium Prices and the Laffer Point. Ekonomika i matematicheskie metody = Economics and Mathematical Methods. 1995;31(4):346–358. (In Russ.)

Canto V.A., Joines D.H., Webb R.I. The Revenue Effects of the Kennedy and Reagan Tax Cuts: Some Time Series Estimates. Journal of Business & Economic Statistics. 1986;4(3):281–288. DOI: 10.2307/1391570.

Stiglitz J. The Roaring Nineties: Seeds of Destruction. London; 2003. 389 p.

Malcomson J.M. Some Analytics of the Laffer Curve. Journal of Public Economics. 1986;29(3):263–279. DOI: 10.1016/0047-2727(86)90029-0.

Fullerton D. On the Possibility of an Inverse Relationship Between Tax Rates and Government Revenues. Journal of Public Economics. 1982;19(1):3–22. DOI: 10.1016/0047-2727(82)90049-4.

Mirowski P. What’s Wrong with the Laffer Curve? Journal of Economic Issues. 1982;16(3):815–828. DOI: 10.1080/00213624.1982.11504034.

Balatskii E.V. The Influence of Fiscal Instruments on Economic Growth: An Evaluation. Studies on Russian Economic Development. 2004;15(4):412–419. Available at: http://nonerg-econ.ru/cat/10/395/

Mayburov I.A., Sokolovskaya A.M. The theory of taxation. Advanced course. Moscow: Yuniti-Dana; 2011. (In Russ.)

Papava V. The Georgian Economy: from ‘Shock Therapy’ to ‘Social Promotion’ (Georgia and ‘Laffer-Keynesian Synthesis’). Communist Economies & Economic Transformation. 1996;8(2):251–267. DOI: 10.2139/ssrn.2182406.

Ananiashvili Iu., Papava V. Laffer-Keynesian Synthesis and Macroeconomic Equilibrium. Stockholm: CA&CC Press; 2010. (In Russ.)

Ananiashvili Iu., Papava V. Taxes, Production Technology and Economic Growth. Problems of Economic Transition. 2012;54(12):71–191. DOI: 10.2753/PET1061-1991541205.

Ananiashvili Iu., Papava V. Impact of the Average Tax Rate on the Aggregate Demand (Keynesian Models). Bulletin of the Georgian National Academy of Sciences. 2012;6(2):162–169. Available at: https://papava.info/publications/Ananiashvili_Papava_Impact_of_the_Average_Tax_Rate.pdf.

Sokolovskaya A.M. Methodological and methodical aspects of determination of the tax burden on labor, capital and consumption. Finance of Ukraine. 2008;(1):65–76. (In Ukr.). Available at: http://nbuv.gov.ua/UJRN/Fu_2008_1_7.

Bukach B.A. Substantiation and Analysis of Various Variants of the Graphic Interpretation of the Laffer Curve. Vestnik SevNTU. 2012;(130):30–38. (In Russ.) Available at: http://lib.sevsu.ru:8080/jspui/bitstream/123456789/5501/1/130_05.pdf.

Gutmann P.M. The Subterranean Economy. Financial Analysis Journal. 1977;33(6):26–34. DOI: 10.2469/faj.v33.n6.26.

Henderson D. Limitation of the Laffer curve as a justification for tax. Cato Journal. 1981;1(1):45–52. Available at: https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1981/5/cj1n1-3.pdf.

Becsi Z. The Shifty Laffer Curve. Federal Reserve Bank of Atlanta. Economic review. 2000;85(3):53–64. Available at: https://www.frbatlanta.org/-/media/documents/research/publications/economic-review/2000/vol85no3_becsi.pdf.

Balatskii E.V. Using Production-Institutional Functions to Analyze the Influence of Tax Load on Economic Growth. Studies on Russian Economic Development. 2003;14(2):134–144. Available at: http://nonerg-econ.ru/filedata/article_file/Using-Production-Institutional-Functions-itog-pdf_1041.pdf.

Kakaulina M. Graphic Interpretation of the Laffer Curve with Tax ‘Migration’. Vestnik UrFU. Seriya ekonomika i upravlenie = Bulletin of Ural Federal University. Series Economics and Management. 2017;16(3):336–356. (In Russ.) DOI: 10.15826/vestnik.2017.16.3.017.

Movshovich S.M., Sokolovsky L.E. Issue, Taxes and the Laffer Curve. Ekonomika i matematicheskie metody = Economics and Mathematical Methods. 1994;30(3):129–141. (In Russ.)

Bukach B.A. Analysis of the Main Assumptions of the Laffer Curve. Vestnik SevNTU. 2011;(116):17–24. (In Russ.) Available at: http://lib.sevsu.ru:8080/xmlui/bitstream/handle/123456789/4879/116_03.pdf?sequence=1&isAllowed=y.

Kakaulina M. Tax burden and economic growth: search for an effective model. Vestnik Tomskogo gosudarstvennogo universiteta = Tomsk State University Journal. 2015;(394):181–188. (In Russ.) DOI: 10.17223/15617793/394/30.

Kakaulina M. Influence of Tax Burden on Economic Growth in the Russian Federation: a Regional Aspect. Regionalnaya ekonomika: teoriya i praktika = Regional Economics: Theory and Practice. 2014;(17):55–64. (In Russ.) Available at: https://elibrary.ru/item.asp?id=21436947.

Nikulina O.M. Tax Burden in Russia: Basic Approaches. Finansy i kredit = Finance and Credit. 2016;(17):13–27. (In Russ.) Available at: https://elibrary.ru/item.asp?id=26004850.

Turbina N.M., Kosenkova Yu.Yu. Tax Burden as Indicator of Effectiveness of Tax Policy of Russia. Sotsialno-ekonomicheskie yavleniya i protsessy = Social and Economic Phenomena and Processes. 2017;12(2):154–159. (In Russ.) DOI: 10.20310/1819-8813-2017-12-2-154-159.

Kakaulina M. Assessment and Analysis of the Fiscal Burden in the Russian Federation: An Industry Aspect. Vestnik Tomskogo gosudarstvennogo universiteta. Ekonomika = Tomsk State University Journal. 2019;(46):189–205. (In Russ.) DOI: 10.17223/19988648/46/13.

Balatsky E., Ekimova N. Tax-Budget Policy and Economic Growth. Society and Economy. 2011;(4-5):197–214. (In Russ.) Available at: https://elibrary.ru/item.asp?id=16902067.




Copyright (c) 2020 Evgeny V. Balatsky, Natalia A. Ekimova

eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

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