Fiscal Effects of Labour Income Tax Changes in Russia

Sergei G. Belev, Nikita S. Moguchev, Konstantin V. Vekerle

Abstract


The purpose of this article is to evaluate the fiscal effects of changes in social contribution rates in Russia for the period 2010–2014, which was marked by significant changes in tax legislation. The consequences of these changes for both the budget system and the labor market still have not been thoroughly studied. As the empirical and theoretical research shows, taxation could influence the labor market in two ways: through the intensive and extensive margin. This study tests the hypothesis about the two kinds of effects of taxation for Russia by using the data of the Russian Longitudinal Monitoring Survey. It is demonstrated that an increase in the social contribution rate causes a decline in labor participation both for women and men. Moreover, an increase in the social contribution rate causes a reduction in the net-of-tax wage level for women and men. The state has already exhausted the opportunities for raising social contributions and pushing the reforms further would mean jeopardizing budget revenues and fiscal sustainability. Generally, an increase in social contributions has had a negative impact on the government’s revenues from social contributions and the personal income tax. It can be concluded that in general, the fiscal effects of the reforms were negative rather than positive. We would recommend the government to reconsider the current social contribution rates. Since the labour market is highly sensitive, it is possible to raise tax revenue through other means, thus avoiding adverse effects on public welfare.


Keywords


fiscal effects, labor particapation, tax legislation, tax revenues, labor income taxation, nonlinearity of the tax scale, Heckman procedure, social contributions

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DOI: https://doi.org/10.15826/jtr.2020.6.3.082

Copyright (c) 2020 Sergei G. Belev, Nikita S. Moguchev, Konstantin V. Vekerle

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