Strategic Tax Collection and Fiscal Decentralization: The Case of Russia

Abstract

In a centralized federation, where tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities because of a variety of reasons. These range from tax competition to principal-agent problems, state capture and benefits of fiscal equalization. In this paper we discuss strategic tax auditing and collection from the perspective of fiscal federalism and test for strategic tax collection empirically using data of the Russian Federation. Russia's regional authorities in the 1990s have always been suspect of tax auditing manipulations in their favor. However, in the 2000s increasing bargaining power of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favor of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period after exclusion of outliers; the results for the Putin period are however rather ambiguous.JEL Codes: H26, H77

Roving Bandits in Action: Outside Option and Governmental Predation in Autocracies

“…Second, the presence of outliers potentially driving the results is not a novel point for the studies of Russian federalism: a number of papers have explicitly derived the lists of outliers among Russian regions different from the rest of the federation in various characteristics (see DeJong 2003, 2005;Berkowitz and Jackson 2006;Buccellato 2007;Ledyaeva 2009;Glushchenko 2009;Freinkman et al 2011;Libman and Feld 2012;Libman 2012). Most typically, these outliers include the cities of Moscow and St. Petersburg and the oil-rich Tyumen region; in growth regressions abnormal behavior was typically shown by Chukotka, Ingushetiya and Kalmykia.…”

Roving Bandits in Action: Outside Option and Governmental Predation in Autocracies

“…Second, the presence of outliers potentially driving the results is not a novel point for the studies of Russian federalism: a number of papers have explicitly derived the lists of outliers among Russian regions different from the rest of the federation in various characteristics (see Berkowitz and DeJong , ; Berkowitz and Jackson ; Buccellato ; Ledyaeva ; Glushchenko ; Freinkman et al. ; Libman and Feld ; Libman ). Most typically, these outliers include the cities of Moscow and St. Petersburg and the oil‐rich Tyumen region; in growth regressions abnormal behavior was typically shown by Chukotka, Ingushetiya and Kalmykia.…”

Fiscal Equalization and Tax Enforcement

“…An overview is provided by Oates (1999). Previous studies on fiscal equalization, taxation and the provision of local public goods include Zhuravskaya (2000); Bordignon et al (2001); Esteller-Mor e and Sol e-Oll e (2002); Mikesell (2003); Esteller-Mor e (2005); Martinez-Vazquez and Timofeev (2010); Buettner and Wildasin (2006); Bucovetsky and Smart (2006); Rizzo (2008); Egger et al (2009); Mogues et al (2009); or Libman and Feld (2013). 4 Indeed, Bl€ ochliger et al (2007) argue that equalization rates are 'one of the most debated issues in fiscal equalization' (p. 16), and continue: 'Lenient tax effort, especially if tax administration is under subcentral control, may (.…”