Who Benefits from Fiscal Redistribution in the Russian Federation?

This paper shows that the system of taxes and transfers in Russia has a limited redistributive capacity vertically (among different income groups)—particularly when pensions are assumed to be deferred income—though it does achieve significant horizontal redistribution (among sociodemographic groups). The main results of the analysis, concern the Russian fiscal system’s limited redistributive effect,low effectiveness in poverty reduction, and relatively poor net financial impact on all demographic groups except pensioners. Firstly, benchmarking shows that the Russian system of direct taxes and transfers does not compare well with countries that achieve larger redistribution, in particular European Union countries. Secondly,net direct taxes (incorporated into disposable income) are always equalizing, but net indirect taxes (incorporated into consumable income) are unequalizing in both the benchmark and the sensitivity analysis scenarios. Thirdly, under the benchmark scenario, the net effect of the fiscal system is actually poverty increasing. Finally, it appears that all households of working-age people with and without children are net payers under the Russian fiscal system, while only pensioners’ households benefit from the fiscal redistribution in Russia under both scenarios. The main conclusion that emerges from this analysis is that there are both equity and efficiency reasons to review the tax and social spending structure. Such an exercise may require, however, a good understanding of the political economy of a potential reform.