Abstract
The COVID-19 pandemic has put a great strain on the Russian economy and budget revenue. The study aims at furnishing an estimate of losses in personal income tax revenue in regional government budgets in 2020–2023 due to the COVID-19 pandemic. In order to investigate the shortfall in tax revenues, three factors were studied: the amount of damage caused by the COVID-19 outbreak to the whole economic system; the sensitivity of the state revenue base to the crisis; the sensitivity of regional tax revenue to the revenue base. The study was based on the annual reports of the Federal Tax Service of Russia, Rosstat data, Forecast of the Social and Economic Development of the Russian Federation, and data from the “National action plan to ensure the recovery of employment and incomes of population, economic growth and long-term structural changes in the economy”. It was found that recession will lead to a significant reduction in people’s income over the given period. As a result, personal income tax revenues will decrease. The budget losses will reach 416.6 billion rubles by the end of the 2020 fiscal year. This is equivalent to 0.4% of GDP and 9.7% of total income from personal income tax in an economic situation unmarred by the pandemic. The largest fall in public revenue is expected in the regions which stand out in regard to personal income tax revenues per capita. The research results confirm the initial hypothesis that the negative impact of the pandemic on personal income tax revenues depends on the share of income tax revenues of a particular region or municipality. The findings can be used by the regional and municipal financial authorities for developing draft budgets for 2022 and the planning period of 2023–2024.
Highlights
An important characteristic of any personal income tax structure is the elasticity of income tax revenue with respect to changes in gross income, when there are no adjustments to income thresholds or other discretionary changes to the tax structure
It is argued that such refundable credits, since they can in principle be administered by a separate authority and their cost is unrelated to the income tax structure, should not be included where – as here – emphasis is on the revenue elasticity from the point of view of revenue growth and fiscal drag
The second term shows the modifications arising from the eligible expenditures and allowances, which are involved in the transformation from gross to taxable income, and the central and regional tax credits
Summary
An important characteristic of any personal income tax structure is the elasticity of income tax revenue with respect to changes in gross income, when there are no adjustments to income thresholds or other discretionary changes to the tax structure. A number of these elements depend on nonincome as well as income characteristics of tax units This complexity means that extensions need to be made to standard methods of obtaining revenue elasticities.. The approach followed here is to derive an analytical expression for the revenue elasticity of tax units, with respect to changes in gross income. This is shown to depend on a number of ‘ancillary elasticities’ which affect the way in which eligible expenditures and deductions, and tax credits, vary with unit income, along with the relative movements of each income source.
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