Estimation of Profit Taxation Effect on Russian Companies’ Investments

Sergei G. Belev, Evgenii O. Matveev, Nikita S. Moguchev


Lack of investments in fixed assets which stimulate economic growth is one of the problems of the modern Russian economy. According to the main hypothesis of the research, that corporate profit taxation decreases companies’ investment level, we aimed to assess the level of impact of profit taxation on investments in fixed assets. To test the hypothesis, we estimate the empirical investment equation, using the indicator of tax burden as one of the factors affecting investment. The theoretical basis of the research is the neoclassical cash-flow model. The marginal effective tax rate (METR) was used as an indicator of the tax burden. The empirical equation was estimated using a random effects model on the panel microdata, which includes financial statistics of 4,000 Russian companies for the period 2014–2018. The sample companies represent 78 regions of Russia and about 50 types of economic activity. We assumed heterogeneous effect of profit taxation and estimated the model separately for each of the three groups of companies differing in the degree of financial constraints. According to the results obtained, for the entire sample, for the entire period under review, we observe a negative impact of the marginal effective rate on the level of investment, significant at the 1% level. In aggregate, if the marginal effective tax rate falls by 1 percentage point, the investment level will increase by 0.05 percentage points. We obtained the following main results: profit taxation has a significant negative effect on the level of investment for companies that are not financially constrained, and the effect is not observed for financially constrained companies; younger companies are more sensitive to changes in profit taxation. However, general sensitivity of investment to profit taxation is quite modest.

For citation

Belev S.G., Matveev E.O., Moguchev N.S. Estimation of Profit Taxation Effect on Russian Companies’ Investments. Journal of Tax Reform. 2022;8(2):127–139.

Article info

Received April 22, 2022; Revised June 17, 2022; Accepted July 25, 2022


Investment, profit taxation, tax burden, effective marginal tax rate, loss carry forward, financial constraints


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