An integral approach to evaluating the effectiveness of tax incentives

Abstract

The article analyzes the prospects and opportunities for using integral indicators to evaluate the effectiveness of tax incentives. The following key indicators are selected: the integral index of 13 tax incentive indicators’ growth rate; the multidimensional mean calculated on the basis of trade turnover of the Eurasian Economic Union; a complex rating evaluation of the effectiveness of regional tax incentives. Tax incentive indicators are understood as those indices that best reflect the economic performance of companies in a certain business sector. The goal of the article is to determine the priority areas of using tax incentives based on the comparative theoretical analysis of integral indicators for evaluating their effectiveness. Research methodology includes the analysis of tax incentives’ indicators calculated on the basis of official statistics and characterizing budgetary, social and economic effectiveness. Besides, the authors use the instruments of the regression and correlation analysis. It is determined that the coefficient approach is best used to evaluate time oriented tax incentives, while the absolute approach –socially or spatially oriented tax incentives. The authors use their own methodology to prove that in 2011–2016 tax incentives for agriculture (from the industry-based perspective) and for research and development (from the target-based perspective) were effective. The use of the complex rating of tax incentives’ effectiveness at the regional level showed that high effectiveness was achieved only in two subjects of the Russian Federation, while absolute effectiveness was not achieved in any of them. At the same time, most regions stayed in the range of sufficient and low effectiveness. Research results can be used by the Ministry of Finance and the Government of the Russian Federation when developing ways of improving the taxation policy. Highlights 1. The coefficient approach is most commonly used to evaluate tax incentives, although it is advisable to use the absolute approach through the calculation of the multidimensional mean for some social and territorial tax incentives 2. To analyze the effectiveness of tax incentives, the authors selected thirteen tax incentive indicators that reflect the social and economic development of an industry. They include budgetary revenues by tax type, the number of workplaces in the full-time equivalent, GVA, growth rate of investments in fixed assets, etc. 3. It is advisable to evaluate the effectiveness of the instruments of industry-based and target (specific) tax incentives by using the integral index of the tax incentive indicators’ growth rate 4. It is suggested that the multidimensional mean should be used to evaluate the impact of reduced tax rates on VAT and excise duties on the volume of trans-border trade of the Eurasian Economic Union countries 5. The regional tax policy of stimulating production should be evaluated through the complex rating of the effectiveness of regional tax incentives by using the instruments of the regression and correlation analysis For citation Steshenko J. A., Tikhonova A. V. An integral approach to evaluating the effectiveness of tax incentives. Journal of Tax Reform, 2018, vol. 4, no. 2, pp. 157–173. DOI: 10.15826/jtr.2018.4.2.050 Article info Received July 1, 2018; accepted August 6, 2018