Progressive income tax as a driver for the development of high-tech industries in Russia

Evgeny V. Balatsky, Nataly A. Ekimova

Abstract


The study tests the hypothesis that Russia’s transition from flat to progressive income taxation will produce revenue that would be sufficient for the advancement of high-tech industries. To test this hypothesis, we considered two scenarios of the reform – the two-tiered system, which has been implemented since 2021, and the project of a four-tiered system proposed by the Liberal Democratic Party. To estimate the effects of the tax reform, we calculated the revenues from taxing high-income taxpayer groups and subgroups at specific tax rates. As a result, it was found that the reform could produce 187 billion Rubles in extra revenue, which means that there is a vast discrepancy between the calculated estimates and the government’s expectations (60 billion Rubles). In other words, the Russian government significantly underestimates the potential of the income tax. According to the second scenario, which aims to build a more sophisticated income tax system, the revenue would be 1.1 trillion Rubles. Thus, a well-designed scale of the personal income tax will enable the government to considerably enhance this tool’s fiscal efficiency. The calculations of the extra revenue generated by the reform relied on the statistics of the World Inequality Database (WID) for 2019. To test the relevance of the input and output data, we conducted a comparative analysis at the micro-level by looking at the wage levels in Russian, American and European space corporations. We found that the micro-economic data are closer to the WID statistics rather than to Rosstat, which confirmed the accuracy of our results. Our calculations have confirmed the general hypothesis and showed that the extra revenue from the reform will enable the government to fully modernize microelectronics and the geothermal industry in Russia.

For citation

Balatsky E.V., Ekimova N.A. Progressive income tax as a driver for the development of high-tech industries in Russia. Journal of Tax Reform. 2021;7(3):212–230. https://doi.org/10.15826/jtr.2021.7.3.099

Article info

Received July 28, 2021; Revised September 1, 2021; Accepted October 10, 2021


Keywords


progressive taxation, personal income tax, PIT, effectiveness, industry analysis

References


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DOI: https://doi.org/10.15826/jtr.2021.7.3.099

Copyright (c) 2021 Evgeny V. Balatsky, Nataly A. Ekimova

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