Abstract
In 2019, in Russia the standard VAT rate was raised from 18% to 20%, which resulted in a broad discussion about the possible negative effects of this measure such as falling consumer spending, producers’ revenues and profits, imports and exports. The purpose of this study is to test the widely spread views about the impact of VAT on macro-economic parameters such as final consumption, gross profit and gross mixed income, fixed capital investment and export volume. To this end, we formulated three hypotheses, which we tested by using correlation, dispersion and regression analysis based on the data of the system of national accounts and reports of tax authorities in Russia. We built four dual linear regression equations and one multiple regression equation; estimated the significance of these equations (determination coefficient, F-statistic, average approximation error) and their coefficients (Student’s t -test, p -value). The resulting equations were shown to accurately represent the relationship between the criterion variables and predictors. The hypothesis about the negative correlation between VAT and consumer spending was refuted in the case of Russia. VAT revenues to the consolidated budget have a direct influence on consumer spending in the ratio of 1:12.605 and a direct influence on the tax index on consumption, index of spending and index of final consumption in the ratio of 1:0.276. There is also evidence that VAT does not have a significant negative impact on the country’s economic performance on the macro-level. VAT revenues to the consolidated budget have a direct influence on gross profit and mixed income in the ratio of 1:8.455. VAT refunds to exporters stimulate fixed capital investment and exports (VAT refunds have a direct influence on fixed capital investment in the ratio of 1:6.543 and on exports, in the ratio of 1:11.117). The positive dependencies demonstrate the neutral influence of VAT on economic growth in Russia and need to be taken into account by VAT policy-makers. For citation Koroleva L.P. Impact of Value Added Tax on Macro-Economic Parameters of the Russian Economy. Journal of Tax Reform . 2020;6(1):22–35. DOI: 10.15826/jtr.2020.6.1.073. Article info Received February 5, 2020 ; Revised March 20, 2020 ; Accepted April 1, 2020
Highlights
Indirect taxes such as value added taxes (VAT) generate a substantial part of tax revenue in many countries
More focus on internationally mobile tax bases has drawn attention to levying more of the tax burden on indirect taxes as consumption taxes or VAT systems, and less on income taxes, especially capital income
When analysing the welfare effects of the different reforms we focus on the importance of the initial wedges created by the non-optimal initial system of direct and indirect taxation and by the different market structures
Summary
Indirect taxes such as value added taxes (VAT) generate a substantial part of tax revenue in many countries. More focus on internationally mobile tax bases has drawn attention to levying more of the tax burden on indirect taxes as consumption taxes or VAT systems, and less on income taxes, especially capital income. During the harmonization of EU taxes, indirect taxes and VAT systems received much attention, Fehr, Rosenberg and Wiegard (1995). The current EU system is characterized by a general VAT law covering all private goods and services, but there are many exceptions from this general instruction. Such a VAT system exists in Norway as a consequence of the Norwegian VAT reform in 2001. The reform introduced a general VAT law on services, but many exceptions are still specified
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