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TERRA ECONOMICUS

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  • Impact of taxation on economic growth in Russia: The tax buoyancy approach

Impact of taxation on economic growth in Russia: The tax buoyancy approach


TERRA ECONOMICUS, , Vol. 22 (no. 2),

The paper analyzes the impact of tax policy in the Russian Federation on investment and economic growth in 2009–2022 by measuring tax buoyancy, which characterizes the percentage change in taxes to the percentage change in the tax base. A tax buoyancy smaller than one would imply tax policy promoting private investment, while a buoyancy of one – public investment. If buoyancy is above one in value, neutral tax policy takes place. We found that withing the analyzed period two stages can be distinguished: (1) 2009–2015, featured by tax buoyancy smaller than one, i.e. tax growth rates lagged GDP growth rates; (2) 2016–2022, when tax buoyancy exceeded one, i.e. tax growth rates outpaced GDP growth rates. Despite significant change in tax buoyancy, no strong effect of taxes on investments in R&D and fixed capital was found. This does not mean that taxes do not matter (counterfactual analysis might prove their significance), but indicates that their impact on investment and economic growth at the macroeconomic level was counterbalanced by another factors, which are of non-tax nature. The second stage (2016–2022) was featured by high tax buoyancy in terms of non-oil and gas revenues, but additional revenues received by the government were not converted into increased business activity. To bring money back to the real sector on a systematic basis and accelerate economic growth, measures should be taken to reduce the effective CIT rate (by reducing the basic nominal rate and/or expanding innovation and investment incentives). In the long term, corporate income tax might be replaced with an alternative tax that is less hindering to economic growth and better amenable to digitalization.
Citation: Bogachov S.V., Vishnevsky V.P. (2024). Impact of taxation on economic growth in Russia: The tax buoyancy approach. Terra Economicus 22(2), 22–38 (in Russian). DOI: 10.18522/2073-6606-2024-22-2-22-38The paper analyzes the impact of tax policy in the Russian Federation on investment and economic growth in 2009–2022 by measuring tax buoyancy, which characterizes the percentage change in taxes to the percentage change in the tax base. A tax buoyancy smaller than one would imply tax policy promoting private investment, while a buoyancy of one – public investment. If buoyancy is above one in value, neutral tax policy takes place. We found that withing the analyzed period two stages can be distinguished: (1) 2009–2015, featured by tax buoyancy smaller than one, i.e. tax growth rates lagged GDP growth rates; (2) 2016–2022, when tax buoyancy exceeded one, i.e. tax growth rates outpaced GDP growth rates. Despite significant change in tax buoyancy, no strong effect of taxes on investments in R&D and fixed capital was found. This does not mean that taxes do not matter (counterfactual analysis might prove their significance), but indicates that their impact on investment and economic growth at the macroeconomic level was counterbalanced by another factors, which are of non-tax nature. The second stage (2016–2022) was featured by high tax buoyancy in terms of non-oil and gas revenues, but additional revenues received by the government were not converted into increased business activity. To bring money back to the real sector on a systematic basis and accelerate economic growth, measures should be taken to reduce the effective CIT rate (by reducing the basic nominal rate and/or expanding innovation and investment incentives). In the long term, corporate income tax might be replaced with an alternative tax that is less hindering to economic growth and better amenable to digitalization.The paper analyzes the impact of tax policy in the Russian Federation on investment and economic growth in 2009–2022 by measuring tax buoyancy, which characterizes the percentage change in taxes to the percentage change in the tax base. A tax buoyancy smaller than one would imply tax policy promoting private investment, while a buoyancy of one – public investment. If buoyancy is above one in value, neutral tax policy takes place. We found that withing the analyzed period two stages can be distinguished: (1) 2009–2015, featured by tax buoyancy smaller than one, i.e. tax growth rates lagged GDP growth rates; (2) 2016–2022, when tax buoyancy exceeded one, i.e. tax growth rates outpaced GDP growth rates. Despite significant change in tax buoyancy, no strong effect of taxes on investments in R&D and fixed capital was found. This does not mean that taxes do not matter (counterfactual analysis might prove their significance), but indicates that their impact on investment and economic growth at the macroeconomic level was counterbalanced by another factors, which are of non-tax nature. The second stage (2016–2022) was featured by high tax buoyancy in terms of non-oil and gas revenues, but additional revenues received by the government were not converted into increased business activity. To bring money back to the real sector on a systematic basis and accelerate economic growth, measures should be taken to reduce the effective CIT rate (by reducing the basic nominal rate and/or expanding innovation and investment incentives). In the long term, corporate income tax might be replaced with an alternative tax that is less hindering to economic growth and better amenable to digitalization.
Acknowledgment: The research is supported by the budgetary funds within the state assignment of the Financial University under the Government of the Russian Federation.


Keywords: economic growth; tax incentives; tax buoyancy; corporate income tax

JEL codes: H21, H30

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606