Correlation Assessment of Tax System Risk and Profitability in the Russian Regions

The purpose of this paper is an assessment of the risk of regional tax systems at different levels of the budget system (consolidated, federal, regional and local), decomposition of this risk by sources (various taxes and tax groups) and the isolation of internal (related to own tax return volatility) and external (related to the correlation of tax returns volatility) risk components. Using the portfolio approach, we measured and decomposed the risk of tax systems of 80 constituent entities of the Russian Federation in 2006–2017. As a result, we found a weak positive relationship between the risk and return of the regional tax systems at all budget levels. By comparing the structure of return and risk of regional tax systems, we identified taxes – risk dampers and taxes – risk enhancers, and estimated the overall level of imbalance in regional tax systems at the studied budget levels. It allowed us to conclude about the effectiveness of diversification of regional tax systems, the advisability of combining different taxes in a single portfolio, or transferring them to another level of the budget system.

Section: Methodsmentioning

confidence: 94%

Risks of Regional Tax Systems and Their Portfolio Decomposition: The Case of Modern Russia

Малкина¹,

Balakin²

2020

“…In general, we developed a portfolio approach to assessment of the risk of tax systems earlier proposed in a range of our works (Malkina and Balakin, 2015;Malkina and Balakin, 2016). The novelty of the present study is in composing of tax portfolio of industries (economic activities) generating tax revenues.…”

Section: Discussionmentioning

confidence: 99%

“…Since an economy is composed of industries or activities, tax system risk level may be evaluated based on the "portfolio approach", referring to H. Markowitz theory, which was extended to tax systems risk assessment by (Seegert, 2015). In our previous research we also used the Markowitz portfolio theory and Sharpe ratio for assessment of Russian regions tax systems risk and efficiency as a whole (Malkina and Balakin, 2015) and allocated to different levels of budget system (Malkina and Balakin, 2016). Formerly we composed tax portfolio of 8 various taxes and tax groups.…”

Section: Introductionmentioning

confidence: 99%

Influence of the Industrial Structure of Economy on the Risk Level of Russian Regions' Tax Systems

Малкина¹

2017

The paper is aimed at study of the influence of industrial structure of regional economy on its tax system risk level. The tax systems risk level of Russian regions in 2006 -2014 was assessed applying the H. Markowitz portfolio approach under the assumption that regional "portfolio" consists of main economic activities. It allowed us to evaluate contribution of various economic activities to total tax system risk, to decompose it into internal and external by origin and to identify the critical zones of instability in Russian regions. The coefficients of variation of tax yield rate revealed different relative impact of the economic activities on instability of regional tax systems. Besides, we found mainly positive albeit changing in strength correlation between internal and total tax system risk level and tax yield rate in economic activities. The diversification level of regional economies was evaluated by means of standard deviation of regional industrial structure from country structure considered as a benchmark. Inclusion of this level along with the tax yield rate and a set of control variables into two developed regressions estimated with GRP-weighted least-square method allowed us to confirm positive influence of diversification on the tax systems stability. Our results may be applicable to management of tax system risks at the regional level.

“…Finally, we should refer to a number of our own works, where the portfolio approach has already been used to assess and decompose the risk level of tax systems (Malkina and Balakin, 2015;Malkina, 2017), as well as to analyze the volatility of financial return in Russia and its regions (Malkina, 2018a(Malkina, , 2018b.…”

Section: Literature Overviewmentioning

confidence: 99%

How Change in Industry Mix Can Improve the Financial Performance of Regional Economies: Evidence from the Portfolio Approach

Малкина¹

2019

The aim of the study is to adapt the portfolio approach to optimization of the industrial structures of regional economies and to assess its results. The research is based on data of the Russian regions and federal districts in 2004–2016. The ratio of a balanced financial result to gross regional product referred to as financial return, and its volatility, called financial risk, were used as target parameters of regional economies. The application of the portfolio approach allowed us to evaluate financial return and risk in the regions and districts and decompose them by industries. Further, we solved three optimization problems: maximization of financial return at a given risk level, minimization of risk at a given return level, maximization of the Arrow-Pratt risk aversion utility function, and assessed their gains. As a result, we found that all three optimizations were often accompanied by a certain re-specialization of regional economies, rather than an increase in the degree of their diversification, although in the regions the situation was significantly different. For the federal districts, we identified a cross-regional effect that neutralized financial volatility, which can be used in re-specialization of regions within districts. Ultimately, the features and limitations of the application of the portfolio approach to the management of industrial structures of regional economies were discussed.