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The indexes of GDP, debtor indebtedness, andtax revenues were deflated, because the monthly deflators of GDP by theconsumer prices index accumulated from January 1992 were not available. Whenstudying the inflows of the profit tax, we took for the tax basis not GDP onthe whole, but GDP without VAT; moreover, we considered as a factor thedeflated increase of the arrears to the Budget as for the profittax.

The following dependence wasobtained:

Y = 0.09X1 + 0.0025X2- 2.69X3 + 0.0004X4 +2.22

(2.1) (0.26) (-0.34) (2.21) (0.2)

R2 = 0.38,

DW = 1.33,

F-stat = 2.9,

where Y are the deflated inflows of theprofit tax,

X1 is the deflated monthly GDP without VAT,

X2 is the deflated accumulated debtor indebtedness,

X3 is the price index by months, and

X4 is the deflated increase of the arrears for the profittax.

As it can be seen, these results cannotconfirm the fact of the negative influence of the inflation on the value of theprofit tax inflow. Theoretically, this may be explained, firstly, by thedepreciation of the real volume of the debtor indebtedness during the periodfrom the moment of shipment of the product and the income of the money to theBudget, and, secondly, by the depreciation of the real volume of a relevantarrears during the time of its existence. The effect of the inflation turns outto be statistically insignificant (t‑statX3=‑0.34).

The effect of the debtor indebtedness isinsignificant, as well (t‑statX2=‑0.26);this is confirmed by its low correlation coefficient with the profit tax (0.3).Essentially, the growth of the debtor indebtedness has a negative effect on theinflows of the profit tax, because it reduces the taxable base. The diagram ofthe dynemics of the above indexes is shown at Fig.2.11. The probableexplanation of the absence of a reliable statistical dependence consists in thestrong effect on the inflows of the profit tax of the seasonal factor and ofthe changes in the degree of strictness of the State policy as for the debtorindebtedness.

Fig. 2.11

Inflow of Profit tax and Debtorindebtedness

If the debtor indebtedness and the pricesindex are excluded, the parameters become better:

Y = 0.09X1 + 0.0003X2 - 1.01

(2.77) (-2.57) (0.3)

R2 = 0.38,

DW = 1.3,

F-stat = 6.44,

where Y are the deflated inflows of theprofit tax,

X1 is the deflated monthly GDP without VAT, and

X2 is the deflated increase of the arrears for the profittax.

In our event, we have seen the growth of thereliability of the model (growth of the F‑stat from 2.9 in the previous caseup to 6.44 in this case). Besides, the growth of the significance of thefactors at the indexes is obviously shown. Nevertheless, the low determinationcoefficient means a greater influence of other factors, besides the ones used,on the resulting variable.

It has already been shown, that, among thesefactors, a great role is played by the legislative changes, as well as thedifferent seasonalities of different factors. To analyze the inflows of the VATin 1994-1995 we used such explanatory factors as the dynemics of GDP (seeFig.2.12), the inflation, and the growth of the arrears for theVAT.

The resulting regressional equation is asfollows:

Y= 0.06 X1+12.61 X2- 0.09 X3-13.95

(3.36) (2.81) (-0.32) (-2.46)

R2 = 0.459,

DW = 1.92,

F-stat = 5.4,

where Y means the deflated inflows of theVAT,

X1 means the deflated GDP by months,

X2 means the monthly prices index, and

X3 means the deflated growth of the arrears for the VAT.

Fig. 2.12

Inflows of the VAT and GDP bymonths

The increase of the deflated arrears (fromthe essential point of view it must decrease significantly the tax revenues)turned out a statistically insignificant index. If it is eliminated from themodel, the following results are gotten:

Y= 0.059 X1 + 13.02 X2- 14.44

(3.44) (3.10) (2.70)

R2 = 0.456,

DW = 1.88,

F-stat = 8.38,

where Y means the deflated VATinflows,

X1 -means the deflated GDP by months, and

X2 means the monthly price indexes.

If compared with the first variant, thecharacteristics of the model improved; this allows to believe it adequate. Theabove equation explains 46% of the variations of the value-added tax. One canalso note that the coefficient at GDP equals, approximately, the average shareof the VAT in GDP for the relevant period.

Beginning from 1995, the dependence of theVAT upon inflation changed from negative (in 1992) to positive. The above trendstayed effective for the last two years. To a certain extent, such a characterof the dependence may be explained by the greater influence of the credit onthe VAT depreciation during the time passing between the purchase of the goodsby a tax payer and the moment of their offset with the tax liabilities.Nevertheless, this can hardly explain on the whole the predominance of sucheffect over the depreciation of the tax inflows due to the presence of thedebtor indebtedness and arrears.

During the study of the inter-relationsbetween the real inflows of the income tax and certain macro-economic indexesof 1994-1995, the index of the per capita real income was taken as theprincipal factor determining the dynemics of the inflows of the income tax (seeFig.2.13).

Fig. 2.13

Inflows of Income Tax and Per Capita Incomesin 1994-1995

The close links between these two indexesare due to the fact that the per capita income is, in essence, the basis forthe assessment of the income tax.

In addition, we tried to reveal thedependence between the tax revenues and the degree of evasion from its payment.We used the share of the cash in the money aggregate M2 as the indicator of the intensity ofevasion from the payment of the income tax. As for the subject matter, this isexplained by the dependence between the volume of the illegal (not accountedfor the tax accountancy) dealings and the needs of the economy in liquidity(see Fig.2.14). Obviously, the effect of the share of M0 in M2 on the tax revenues must benegative.

The results of the regressional analysisconfirmed the initial assumptions:

Y = 196.49 + 0.01X1 - 1614.3X2

(0.75) (8.84) (-2.76)

R2 = 0.83,

F-stat = 52.46,

DW = 0.6,

where Y means the deflated inflows of theincome tax to the Budget,

X1 means the deflated per capita income, and

X2 means the share of 0 in 2.

The obtained high value of the determinationcoefficient determines the good explainability of the inflows of the income taxby the considered factors.

Further on, for a check-up, the hypothesison the interrelation between the dynemics of the income tax and the inflationlevel was proposed (see Fig.2.15).

After forming the regression, the extremelylow determination coefficient (0.0003) was obtained; this means the absence ofany relationship between the above variables.

This result was due, first of all, to theabsence of a lag between the calculation and payment of the income tax; thistax is paid, mainly, from the source, thus eliminating the inflationaldepreciation of the arrears sum because it does not exist.

Fig. 2.14

Inflows of Income Tax and Share ofM0 in M2 in 1994-1995

Fig. 2.15

Inflows of Income Tax and Inflation Level in1994-1995

Regional Particularities of BudgetaryPolicy

The nineties are characterized by theobvious trend toward the growth of both the incomes and expenditures passing bythe local budgets of the Federation subjects.

The share of incomes of the local budgets(taking into account the transfers) relative to the incomes of the FederalBudget was stably growing since 1992 to 1994 from 0.87 to 1.40, and only in1995, it dropped sharply down to 1.04. Asimilar (on the whole) picture wasobserved with the expenditures, as well (growth from 0.59 in 1992 up to 0.88 in1995‑in fact,contrary to the incomes, a drop was recorded in 1994‑without any collapse in 1995)(see Table2.4).

Table 2.4

Incomes and Expenditures ofRussia’s Budgets in1992-1995, Rb bln





1. Local budgets

1.1 Incomes of localbudgets





1.2 Expenditures oflocal budgets





2. FederalBudget

2.1 Incomes ofFederal Budget





2.2 Expenditures ofFederal Budget





3. Share of localbudgets in Federal Budget

3.1 Incomes(1.1 :2.1)





3.2Expenditures (1.2 : 2.2)





Notes: 1) The expenditures of the localbudgets include the loans minus repayments.

2) The incomes of the local budgets are reduced by the balance ofthe assets as of the beginning of the year.

3) Theexpenditures on the repayment of the domestic State debt are included in theexpenditures.

Taking into account the process of the realdecrease of GDP in the nineties, and the fact that we did not account for theregional extra-budgetary incomes (due to the lack of information), it can besaid that the decentralization of the Budget really took place in 1994, and hasreached its maximum level. The 1995’s decrease of the share of thelocal budgets was due, seemingly, to the reduction of the regional rates of theprofit tax and income tax, the stricter practical implementation of the formulaof the transfers to regions (in practice, this results in the lower share ofthe VAT revenues to be disposed of by the Federation subjects), allowing tocentralize more significant volumes of the revenues.

We believe, that the creation of the Fundfor Financial Support of Territories (for the regions suffering lack andextreme lack) having allowed to formalize somehow the process of the VATsharing between the Federation and its subjects was a great achievement of theyears 1994 and 1995. At the same time, the real transfers under the approvedmethodology, with the offset of the VATs and the grant by the Ministry ofFinance of the VATs privileges for certain territories, did not allow to getout of the subjectivism when delimiting the authorities in what concerns therevenues. This practice stayed effective in 1995, as well, when, analyzing theshare of the VAT revenues staying in regions one could encounter the roundenough figures close to 30, 35, 40, or even 50 and more percent. For 1996, itis planned to introduce the new formula of transfers, but the preliminarycalculations by the Ministry of Finance have shown that the volume of theassets to be transferred to territories will be even smaller than thatcalculated based on the older formula. Hence, a new methodology should beimplemented (see below), which will be difficult enough, and we apprehend thatregions will be, indeed, granted again privileged enough norms for the VAT(though this will be reflected in the reports on the budgetsexecution).

It should be noted that, on the whole, thebudgetary relationships between the center and the Federation subjects aresubmitted, first of all, to the solution of the political, instead of fiscal,problems; this has shown itself in the process of making, in 1994-1995, theagreements with regions (mainly republics, e.g., Tataria, Bashkiria, Yakutia,Buriatia, etc.) on delimitation of authorities (at the and of 1995, theagreement was made with the Sverdlovsk region, the first agreement with anon-republic). Formally, these agreements fixed a series of privileges of thispart of the regions as for the revenues and financing of the Federalexpenditures (their universal practice is that the regions keep a share of theVAT and finance, instead, a share of the Federal programs), which breaks theprinciples of a unique approach to all the subjects. Indeed, the pragmaticmethod of construction of an asymmetric federation allowed to reduce conflictswith the regional elites, increased the share of the centralized assets, andensured the financing of a series of Federal expenditures in the problemregions (though, taking into account the Chechen republic, it is, yet, early toevaluate the long-term vitality of an asymmetric federation).

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