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Estimation of Effect of Taxation on Real Sector Investment in Russia: Calculation of Marginal Effective Tax Rates

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  • Karzanova I.V.

    (Bureau of Economic Analysis.)

Abstract

In this paper we present the theoretical framework, which can be used to examine the potential impact of the taxation system on the accumulation of physical capital in Russia. The modified version of M. King and D. Fullerton microeconomic simulation model of marginal effective tax rates (METRs) is applied to Russia in order to examine incentives provided by three different Russian tax legislations to save and invest in the private non-financial corporate sector. Changes in treatment of interest payment deductibility, in the rates and methods of depreciation of assets, in personal income taxation, as well as some other details of taxation were taken into account. METRs computed for investment projects financed by domestic households through bank loans under the old Tax Laws are not that different from the new Tax Code. They may be considered average by international standards. Under the new Tax Code, we observe a drastic reduction of the effective tax burden on the corporate level and a substantial increase of the tax load on interest income on the personal level. Results may be different when investment projects are financed out of retained earnings or through new share issues.

Suggested Citation

  • Karzanova I.V., 2002. "Estimation of Effect of Taxation on Real Sector Investment in Russia: Calculation of Marginal Effective Tax Rates," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 6(2), pages 225-250.
    • Handle: RePEc:scn:025886:16537825
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    Cited by:

    1. Natalia B. Boldyreva & Liudmila G. Reshetnikova & Elena A. Tarkhanova & Zhanna V. Pisarenko & Svetlana A. Kalayda, 2020. "The Impact of Tax Preferences on the Investment Attractiveness of Bonds for Retail Investors: The Case of Russia," JRFM, MDPI, vol. 13(4), pages 1-11, April.
    2. Samvel S. Lazaryan & Mariya A. Chernotalova, 2017. "Taxes Impact on Private Investment," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 3, pages 71-84, June.
    3. Antzys, S. & Lavlinskii, S. & Panin, A. & Pljasunov, A., 2020. "Bilevel models of investment and tax policy formation in the resource region," Journal of the New Economic Association, New Economic Association, vol. 48(4), pages 41-62.
    4. Olga S. Belomyttseva & Larisa S. Grinkevich & Anastasiia M. Grinkevich & Samo Bobek & Polona Tominc, 2018. "Tax incentives for bond-oriented individual investors: evidence from the Russian Federation," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 4(2), pages 108-124.
    5. Karzanova Irina, 2005. "Impact of tax regime on real sector investment in Russia: marginal effective tax rates for physical, human and R&D capital," EERC Working Paper Series 05-16e, EERC Research Network, Russia and CIS.
    6. Kiesewetter, Dirk, 2002. "Tax neutrality and business taxation in Russia: A proposal for a consumption-based reform of the Russian income and profit tax," Tübinger Diskussionsbeiträge 242, University of Tübingen, School of Business and Economics.

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