Behavioral Responses of Households to Tax Reforms

Abstract

Over the past 10 years, significant reforms have taken place in the Russian tax area. Households are under the influence caused by the following changes: the rules for property and land tax recalculating according to the cadastre data including summer cottages and garages in the list of taxable objects, the transport tax on luxury cars, and the introduction of a progressive personal income tax scale. Accordingly, the purpose of this article is to examine the response of households to changes in tax policy and to interpret this response using behavioral approach. The key hypothesis of the study is that households demonstrate varying degrees of reaction to any changes in tax legislation. Likewise, in the context of the deteriorating fiscal environment, households seek to optimize the tax burden. The authors analyzed the theoretical and methodological basis of this topic, which allowed the authors to propose improvements in methods of studying households. The study was conducted on the basis of data on payments of taxes by the Russian households. The authors revealed the features of the relationship of tax payments and different economic indicators. It is established by the Pearson correlation coefficient that there are varying degrees of households' reaction to changes in tax legislation, and households' responses are not uneven for all types of taxes. Authors also calculated the coefficient of elasticity of tax payments depending on various factors. The approach given in the article is needed for a more complete understanding of how effects of tax changes to households may be used to create effective techniques and measures in tax policy. This study makes unique contributions to further researches in the area, which will lead to the introduction of new mechanisms for state programs in tax area and forecast their implementation for the medium- and long-terms.