Tax capacity in the system of fiscal federalism and promotion of regional development

Abstract

Subject. The article discusses the role of tax capacity in the management of inter-budget relationships. Objectives. The article aims to build and develop a qualitatively new motivational model to encourage Russian constituents to increase their tax potential by ranking them in socio-economic development groups. Methods. For the study, I used the methods of comparative, vertical and horizontal analysis, and statistical groupings. Results. The article clarifies that the mechanism for providing financial or other support to regions with the best tax potential is not working well because the economically developed territories have a higher rate of tax capacity and will always be ahead of the less developed ones. However, that could not be a significant growth rate in the main macroeconomic indicators, since a certain level of development has already been achieved. Conclusions. The article reckons that it is necessary to rate the regions by group of social and economic development and identify leaders with the best tax potential value in each group. This can help to develop an effective system of budgetary allocation and stimulating the regions' tax potential development.