Assessing the tax systems' risk and efficiency in Russian regions at different levels of the budget system

Abstract

− For the whole sample of lower-income countries, ER pressure has a significant negative effect on trade and income tax. In contrast, its effect is negative yet not significant on indirect taxes (goods and services tax), and practically zero on non-tax revenue. The effect is particularly strong and significant in non-democratic as well as in non-resource-rich countries. Apparently, these groups experience more difficulties in counteracting the impact of ER pressure shocks. − Terms-of-trade shocks have significant negative effects on non-tax revenue. The reason is perhaps that these shocks are likely to reduce profits of public enterprises that act as commodity exporters. The effect is negative and significant for all sub-groups except democracies, but stronger for non-resource-rich compared to resource-rich countries. Terms-of-trade shocks also affect income tax revenue in non-democratic and non-resource-rich countries. − Natural disaster intensity affects mostly trade and income taxes, although the coefficient is not significant in any specification.All in all it can be inferred that non-democratic and non-resource-rich countries are particularly vulnerable to shocks affecting income taxes and non-tax revenue. In the case of resource-rich countries, no clear patterns emerge: their revenue structure, though more volatile than that of non-resource-rich countries due to a higher dependence on non-tax revenue, could be less vulnerable to external shocks. At least, there is no robust evidence pointing to volatility of revenue from natural resources being directly connected to increased vulnerability vis-à-vis shocks analysed in this report. This finding Study on the vulnerability and resilience factors of tax revenues in developing countriesFinal Report AETS Consortium -November 2013 4is somewhat unexpected, as conventional wisdom and the literature on rent incomes from (principally) oil would suggest resource-rich economies to be particularly vulnerable to global price and capital shocks. From the present study we get the impression that it is much more the non-resource-rich countries we should be worried about.The findings indicate that vulnerability to shocks should not be regarded exclusively as an issue of major adverse events hitting an economy. It may be important for governments, donors and international organisations to prepare for such events and to develop the appropriate financial tools to deal with them. But it is also important to keep in mind that minor events also have significant effects on revenue and that long-term structural reforms (in particular regarding income tax and non-tax revenue) are a necessary ingredient of any strategy targeting vulnerability of revenue in developing countries. In this context, a broad tax portfolio could contribute to making total revenue less susceptible to individual shocks. Further, the better performance of democracies suggests that reforms pointing to accountability, transparency and rule of law could have an important positive effect on revenue resilience, as g...