Thus, unilateral participation of budgets in the offsets results in the fact that the ratio between the budgets in terms of the amounts of collected taxes and accumulated budgetary payment arrears is at variance with the arrangements stipulated by law. Similarly, if budgets at both levels participate in an offset, the proportion may vary in case their shares do not correspond to the tax arrangements.
There are also other factors at work, which account for imbalances of actually collected taxes and accumulated budgetary payment arrears among the budgets. The imbalances are tax-specific. For instance, exporters are reimbursed VAT from the federal share of this tax. Tax rates vary across regions, systems of privileges are in place for different goods, etc.
Nevertheless, these factors are less significant than offsets. The difference between amounts of offsets conducted by the federal and regional budgets may be evaluated without taking into account these factors.
Budgetary payment arrears (no offsets, all other things being equal) shall be distributed pro rata to taxes:
are the respective actual amounts of the federal and territorial tax budgetary revenues;
are the respective actual amounts of the federal and territorial budgetary payment arrears;
is the ratio between the (effective) federal and regional tax rates;
are the respective amounts of offsets of the federal and territorial budgets.
In case offsets are entered into the equality (7.1) it, as a general rule, is disturbed. Summarizing the aforementioned facts it shall be repeated that offsets may be conducted at the federal and territorial budgetary levels; offsets improve tax collection increasing actual tax revenues, and reduce budgetary payment arrears. Other things being equal:
Similarly at the regional level:
are the respective actual amounts of the federal and territorial tax budgetary revenues in the monetary form (or those assumed to be collected without offsets, other things being equal);
are the respective actual amounts of the federal and territorial budgetary payment arrears (increment over a period), which are assumed to be accumulated without offsets (other things being equal).
In general, the equality (7.1) holds true only for the part of tax transactions (those in the monetary form):
or, taking into account (2) and (3):
The left side of equalities (7.5) and (7.6) presents the weighted difference between amounts of territorial and federal offsets. Unfortunately, due to the fact that there are two equalities in two unknowns (offsets) it is impossible to determine the variables unambiguously, since the equations are linearly dependent. It is only possible to determine the algebraic difference of offsets (the left side of equalities), since the actual amounts of budgetary payment arrears and taxes collected at different budgetary levels. It shall be noted that value derived from equations (7.5) and (7.6) will tally only in case, where
what represents the ratio between taxes charged by the federal and territorial budgets.
Generally speaking, coefficient may be set normatively, since regional tax rates are known. However, the present system of privileges at different budgetary levels and differential tax rates for different product groups result in the fact that in practice the arranged ratio between tax rates of the federal () and regional () budgets is not maintained (). Therefore, may be considered to be a ratio between the effective tax rates:
are respective effective territorial and regional tax rates.
Let us designate
Then, substituting (7.7) in (7.5) and (7.6), it will be obtained that:
It is clear that shall not be regarded as the amount of offsets conducted at one budgetary level. In spite of the fact that it is technically more difficult to conduct offsets at the federal level, such offsets nevertheless were conducted and involved large enterprises. Therefore, their share is significant. Besides, it shall be kept in mind that third factors are at work, which affect the ratio between tax revenues of the federal and regional budgets. Besides, it may be conjectured that in case an offset is conducted simultaneously with monetary tax payments the assumption that the ratio of monetary transactions (7.3') may not hold. For instance, the federal taxpayer may settle with the federal budget in “cash,” while the regional taxpayer may resort to an offset. In accordance with (7.10) and (7.11)
As an example why this variable shall not be regarded as offsets of territorial budgets (discard offsets of the federal budget) the following data may be presented. According to V. M. Zubov17, ex-Governor of the Krasnoyarsk Region, the share of VAT and profit tax offsets in the Krasnoyarsk Region was at 84 per cent and 81 per cent respectively in 1997. According to (7.10) or (7.11) (these values are equal), the share of in actual regional revenue component makes 31 per cent and 17 per cent respectively for VAT and profit tax, what agrees with (7.12).
In fact, any budgetary tax may be offset, since eligibility of taxes is determined by regional administrations18. The ratio between and the amount of collected tax (taxes):
may be only reviewed as a proxy characterizing the excess of the share of non-monetary transactions in regional budgetary tax revenues over the share of offsets in federal budgetary tax revenues collected in this region. At the same time, this indicator may be interpreted differently. The excessive share of federal budgetary payment arrears may be viewed as an evidence of regional protectionism.
Payment Arrears and Offsets
Before proceeding to test these hypotheses, the properties of the indicator shall be analyzed. As it was mentioned above, large budgetary payment arrears originate offsets. Therefore, offsets shall be primarily observed in the regions with higher shares of budgetary payment arrears. This hypothesis may be tested by evaluating the following model:
is the evaluated indicator of the share of offsets in tax revenues (determined above);
is the increment in overdue creditor indebtedness (of industrial enterprises) in the region relatively to the volume of industrial output.
Table 11. Results of the evaluation of coefficients of model (8.1) for 1995-1999.
Note: for the numbers of regions excluded from the sample see Annex 4.
According to the results of the evaluation of model (8.1) (Table 11), coefficients of the explanatory variable are significant over all periods, excluding 1999. Therefore, this hypothesis is not rejected. The regions with larger amounts of outstanding indebtedness demonstrated greater arrears imbalances between the federal and territorial budgets, what may be caused by the higher share of offset transactions at the regional level.
Market Concentration Level
In spite of the authorities’ efforts to simplify offset procedures, only large taxpayers have been involved in offsets. There are several factors behind this phenomenon: first, the complexity of such transactions and, second, certain political power of large taxpayers.
Large enterprises may also more easily put pressure on the fiscal authorities, since large taxpayers may more seriously affect the administration of the budget forcing the authorities to resort to offsets.
Therefore, greater market power may be responsible for more frequent use of offsets.
Goskomstat calculates the share of enterprises dominating respective regional markets (having more than the 35 per cent share on the market of a certain product and operating within the geographical borders of the Russian Federation), and the share of their output in the total industrial regional output. Taking into account the fact that this indicator was not available for all periods under observation (only for 1997 and 1998), there shall be constructed alternative indicators indirectly characterizing the market concentration level. The number of enterprises in a region and the ratio between the charged taxes or GRP and the number of registered enterprises.
To test this hypothesis the following models shall be evaluated:
is the (percentage) share of enterprises having more than the 35 per cent share on the market of a certain product and operating within the geographical borders of the Russian Federation as calculated by Goskomstat;
is the average amount of charged taxes per enterprise (the ratio between the taxes charged in the region and the total number of enterprises registered in this region);
is the average product (GRP) per enterprise (the ratio between GRP and the total number of enterprises registered in this region).
For the results of the model evaluation see Tables 12 through 14.
Table 12. Results of the evaluation of coefficients of model (1а9.1)
The coefficient is statistically significant at the 90 per cent level only for 1997 and is signed as expected. Therefore, there is a slight evidence that the hypothesis that offsets are more frequent in regions with higher degree of monopolization holds true.
Table 13. Results of evaluation of coefficients of model (1б9.2)
Table 14. Results of the evaluation of coefficients of model (1с9.3)
Coefficients of models (1б9.2) and (1с9.3) are significant for years 1996, 1998, and 1999 (1б9.2), what favors this hypothesis. The coefficient of the explanatory variable for 1995 is statistically significant in model (9.2) is of the sign opposite to the expected. This may be explained via the indicator of offsets itself, which characterizes the weighted difference between regional and federal offsets. The negative value of the explained variable (according to the assumptions) means that federal offsets prevailed in the regions with higher degree of monopolization. It shall be noted that federal offsets have intensified since 1995 (see Annex 4) and were followed by regional offsets.
Loss-Making and Bank Crediting
According to a hypothesis reviewed above, the share of offset transactions is higher in the regions generating more payment arrears. However, as was indicated above (see models of non-payments), non-payments significantly correlated with financial results. Therefore, in case non-payments result from loss-making, while non-payments entail offsets there may be observed correlation between offsets and indicators of financial operations.
A similar logic may be applied for other factors affecting non-payments. For instance, the growth in crediting in a region may facilitate decrease in amounts of non-monetary transactions, including offsets.
Growth of federal budgetary payment arrears may create incentives for the spreading of offset transactions both at the federal and regional levels, what renders difficult to predict its impact on indicator.
These hypotheses is tested basing on panel regressions.
Dynamic Regional Model of Offset Transactions
Similarly to the model of non-payments, an aggregate dynamic regional model of offset transactions is built:
is the share of loss-making enterprises in the i-th region over the period t;
is the annualized excess of actual federal budgetary expenditures over targets in per cent of targets;
is the amount of granted credits relatively to the volume of regional industrial output;
are dummies for the period j,.
For the results of evaluation of model (_) (10.1) see Table 15.
Table 15. Results of the evaluation of model (10.1), OLS, White, 1995-1999.
According to the obtained results, the budgetary variable in the model is insignificant. However, coefficients (with some exceptions) of the share of loss-making enterprises in the region and the amount of crediting are of high statistical significance. Coefficients are singed in agreement with the hypotheses. For instance, the share of offset transactions is positively related to the share of loss-making enterprises. Therefore, it may be inferred that offset transactions are of non-voluntary nature (assuming profitability indicators are exogenous).
Table 16. Results of the evaluation of model (10.2), OLS, White, 1996-1999.
According to the results of the evaluation the lagged variable of offset transactions is statistically significant at the 90 per cent level, what may indicate some persistent inclination (propensity) of regions to offset transactions in different periods. In other words, it may be inferred that regions more or less consistently maintain a certain attitude to such operations (another possible explanation is protectionism). Nevertheless, the share of offset transactions varies across time, what is reflected via a low statistical significance of this relationship.
A system of theoretical models was elaborated in the framework of our research concerning the problem of payment arrears. Each of the three micro-economic models characterizes a certain factor (a group of factors) behind the initial emergence of net indebtedness (the difference between obligations and claims). причем система моделей строилась по принципу перехода от простых к более сложным, поэтому рассматриваемые модели характеризуются различным уровнем общности.
The first model considers the factors behind the premeditated increase in outstanding obligations. Such opportunistic behavior may become most widely spread under ineffective market institutions and inadequate system of enforcement of contractual obligations. Therefore, the prevalence of these strategies may be crucial for the economy at large.
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