|Generate QR code
Open Access
Subscription Access
Analysis of tax-spend nexus for Russian regional budgets
https://doi.org/10.32609/0042-8736-2020-2-5-29
Abstract
We study the tax-spend nexus for Russian regional budgets. Causal relationship running from taxing to spending is found, thus supporting the concept “tax and spend” suggested by M. Friedman. Next, elasticity of expenditure by revenue is estimated for a panel of 80 regional budgets basing on data for 2000—2017. Estimates are in the range of 0.72 to 0.78 (depending on the econometric technique), which exceeds elasticity for the federal budget more than twice. This evidences that fiscal policy at the sub-federal (as distinct from the federal) level has clear pro-cyclical nature. Besides, the largest sensitivity of expenditure to revenue shocks is found for the item “national economy”, implying marked adverse implications for economic growth. We suggest to mitigate this effect by modifying fiscal rules for sub-federal budgets. They are currently aimed primarily at enhancing fiscal discipline, with less emphasis on countercyclical policy, insulating economy from fiscal shocks.
About the Authors
Evsey T. Gurvich
Economic Expert Group; Financial Research Institute, Ministry of Finance of the Russian Federation
Russian Federation
Moscow
Russian Federation
Moscow
Natalia A. Krasnopeeva
Economic Expert Group; Financial Research Institute, Ministry of Finance of the Russian Federation
Russian Federation
Moscow
Russian Federation
Moscow
References
1. Akindinova N., Chernyavsky A., Chepel A. (2016). Analysis of regional fiscal balance. Voprosy Ekonomiki, No. 10, pp. 31—48. (In Russian). https://doi.org/10.32609/0042-8736-2016-10-31-48
2. Balaev A. (2017). Factor analysis of the Russian budget system revenues. Ekonomicheskaya Politika, No. 3, pp. 8—37. (In Russian). https://doi.org/10.18288/1994-5124-2017-3-01
3. Bozhechkova A. V., Mamedov A. A., Sinelnikov-Murylev S. G. et al. (2018). Stabilization properties of federal fiscal transfers to Russian regions. Journal of the New Economic Association, No. 4 (40), pp. 61—83. (In Russian). https://doi.org/10.31737/2221-2264-2018-40-4-3
4. Gurvich E., Vakulenko E., Krivenko P. (2009). Cyclical properties of fiscal policy in oil-producing countries. Voprosy Ekonomiki, No. 2, pp. 51—70. (In Russian). https://doi.org/10.32609/0042-8736-2009-2-51-70
5. Kreindel V. (2008). Diagnostics of the dominating regime of the subjects of Russian Federation budget policy. Ekonomicheskaya Politika, No. 1, pp. 141—151. (In Russian).
6. Kudrin A., Deryugin A. (2018). Subnational budget rules: Foreign and Russian experience . Ekonomicheskaya Politika, No. 1, pp. 8—35. (In Russian). https://doi.org/10.18288/1994-5124-2018-1-01
7. Sinelnikov-Murylev S., Kadochnikov P., Trunin I. et al. (2006). The problem of soft budget constraints of Russian regional governments. Moscow: IET. (In Russian).
8. Siluanov A. G., Nazarov V. S. (2009). Adaptation of interbudgetary relations and subnational finances system to economic conjuncture fluctuations. Ekonomicheskaya Politika, No. 4, pp. 171—189. (In Russian).
9. Aizenman J., Jinjarak Y., Nguyen H., Park D. (2019). Fiscal space and government-spending & tax-rate cyclicality patterns: A cross-country comparison, 1960—2016. Journal of Macroeconomics, Vol. 60, pp. 229—252. https://doi.org/10.1016/j.jmacro.2019.02.006
10. Alesina A., Perotti R. (1995). Fiscal expansions and fiscal adjustments in OECD countries. NBER Working Paper, No. 5214. https://doi.org/10.3386/w5214
11. Alesina A., Favero C., Giavazzi F. (2019). Effects of austerity: Expenditureand tax-based approaches. Journal of Economic Perspectives, Vol. 33, No. 2, pp. 141—162. https://doi.org/10.1257/jep.33.2.141
12. Arellano M., Bover O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, Vol. 68, No. 1, pp. 29—51. https://doi.org/10.1016/0304-4076(94)01642-D
13. Arezki R., Ismail K. (2010). Boom-bust cycle, asymmetrical fiscal response and the Dutch disease. IMF Working Papers, No. 10/94. https://doi.org/10.5089/9781451982718.001
14. Baghestani H., McNown R. (1994). Do revenues or expenditures respond to budgetary disequilibria? Southern Economic Journal, Vol. 61, No. 2, pp. 311—322. https://doi.org/10.2307/1059979
15. Bohn H. (2008). The sustainability of fiscal policy in the United States. In: R. Neck, J.-E. Sturm (eds.). Sustainability of public debt. Cambridge, MA: The MIT Press, pp. 15—49.
16. Chang T., Chang G. (2009). Revisiting the government revenue-expenditure nexus: Evidence from 15 OECD countries based on the panel data approach. Czech Journal of Economics and Finance, Vol. 59, pp. 165—172.
17. Chowdhury A. (2011). State government revenue and expenditures: A boot-strap panel analysis. Unpublished manuscript, Marquette University, Wisconsin.
18. Darrat A. (2002). Budget balance through spending cuts or tax adjustments? Contemporary Economic Policy, Vol. 20, No. 3, pp. 221—230. https://doi.org/10.1093/cep/20.3.221
19. De Castro F., González-Páramo J., De Cos P. (2004). Fiscal consolidation in Spain: Dynamic interdependence of public spending and revenues. Investigaciones Econуmicas, Vol. 28, No. 1, pp. 193—207.
20. Dumitrescu E., Hurlin C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, Vol. 29, pp. 1450—1460. https://doi.org/10.1016/j.econmod.2012.02.014
21. Erbil N. (2011). Is fiscal policy procyclical in developing oil-producing countries? IMF Working Papers, No. 11/171. https://doi.org/10.5089/9781462314324.001
22. Ewing B., Payne J., Thompson M., Al-Zoubi O. M. (2006). Government expenditures and revenues: Evidence from asymmetric modeling. Southern Economic Journal, Vol. 73, No. 1, pp. 190—200. https://doi.org/10.2307/20111882
23. Eyraud L., Debrun X., Hodge A., Lledo V., Pattillo C. (2018). Second-generation fiscal rules: Balancing simplicity, flexibility, and enforceability. IMF Staff Discussion Note, No. 2018/04. https://doi.org/10.5089/9781484350683.006
24. Fasano U., Wang Q. (2002). Testing the relationship between government spending and revenue: Evidence from GCC countries. IMF Working Papers, No. 02/201. https://doi.org/10.5089/9781451874365.001
25. Fatás A., Mihov I. (2013). Policy volatility, institutions and economic growth. Review of Economics and Statistics, Vol. 95, No. 2, pp. 362—376. https://doi.org/10.1162/REST_a_00265
26. Frankel J. (2011). A solution to fiscal procyclicality: The structural budget institutions pioneered by Chile. NBER Working Paper, No. 16945. https://doi.org/10.3386/w16945
27. Frankel J., Vegh C., Vuletin G. (2013). On graduation from fiscal procyclicality. Journal of Development Economics, Vol. 100, No. 1, pp. 32—47. https://doi.org/10.1016/j.jdeveco.2012.07.001
28. Friedman M. (1978). The limitations of tax limitation. Policy Review, Vol. 5, Summer, pp. 7—14.
29. Furceri D., Jalles J. (2018). Determinants and effects of fiscal counter-cyclicality. Ensayos Sobre Politica Economica, Vol. 36, No. 85, pp. 137—151. https://doi.org/10.32468/Espe.8508
30. Guerguil M., Mandon P., Tapsoba R. (2016). Flexible fiscal rules and countercyclical fiscal policy. IMF Working Papers, No. 16/8. https://doi.org/10.5089/9781513581460.001
31. Hansen B. E. (2019). Econometrics [draft graduate textbook]. Unpublished manuscript, University of Wisconsin. Revised: August. https://www.ssc.wisc.edu/~bhansen/econometrics/Econometrics.pdf
32. Ho Y., Huang C. (2009). Tax-spend, spend-tax, or fiscal synchronization: A panel analysis of the Chinese provincial real data. Journal of Economics and Management, Vol. 5, No. 2, pp. 257—272.
33. Husain A., Tazhibayeva K., Ter-Martirosyan A. (2008). Fiscal policy and economic cycles in oil-exporting countries. IMF Working Papers, No. 08/253. https://doi.org/10.5089/9781451871111.001
34. Ilzetzki E., Vegh C. (2009). Procyclical fiscal policy in developing countries: Truth or fiction? NBER Working Paper, No. 14191. https://doi.org/10.3386/w14191
35. Karakas M., Turan T. (2019). The government spending-revenue nexus in CEE countries: Some evidence for asymmetric effects. Prague Economic Papers, Vol. 28, No. 6, pp. 633—647. https://doi.org/10.18267/j.pep.697
36. Kollias C., Paleologou S.-M. (2006). Fiscal policy in the European Union: Tax and spend, spend and tax, fiscal synchronisation or institutional separation ? Journal of Economic Studies, Vol. 33, No. 2, pp. 108—120. https://doi.org/10.1108/01443580610666064
37. Konstantinou P. (2004). Balancing the budget through revenue or spending adjustments? The case of Greece. Journal of Economic Development, Vol. 29, No. 2, pp. 81—105.
38. Konukcu-Ӧnal D., Tosun A. (2008). Government revenue-expenditure nexus: Evidence from several transitional economies. Economic Annals, Vol. 53, pp. 145—156. https://doi.org/10.2298/EKA0879145K
39. Meltzer A., Richard S. (1981). A rational theory of the size of government. Journal of Political Economy, Vol. 89, No. 5, pp. 914—927. https://doi.org/10.1086/261013
40. Musgrave R. (1966). Principles of budget determination. In: H. Cameron, W. Henderson (eds.). Public finance: Selected readings. New York: Random House, pp. 15—27.
41. McManus R., Ozkan G. (2015). On the consequences of procyclical fiscal policy. Fiscal Studies, Vol. 36, No. 1, pp. 29—50. https://doi.org/10.1111/j.1475-5890.2015.12044.x
42. Misra S., Ranjan R. (2018). Fiscal rules and procyclicality: An empirical analysis. Indian Economic Review, Vol. 53, No. 1, pp. 207—228. https://doi.org/10.1007/s41775-018-0033-z
43. Narayan P. (2005). The saving and investment nexus for China: Evidence from co-integration tests. Applied Economics, Vol. 37, No. 17, pp. 1979—1990. https://doi.org/10.1080/00036840500278103
44. Owoye O., Onafovora O. (2011). The relationship between tax revenues and government expenditures in European Union and non-European Union OECD countries. Public Finance Review, Vol. 39, No. 3, pp. 429—461. https://doi.org/10.1177/1091142110386211
45. Payne J. (2003). A survey of the international empirical evidence on the tax-spend debate. Public Finance Review, Vol. 31, No. 3, pp. 302—323. https://doi.org/10.1177/1091142103031003005
46. Peacock A., Wiseman J. (1961). The growth of public expenditures in the United Kingdom. Princeton, NJ: Princeton University Press.
47. Peacock A., Wiseman J. (1979). Approaches to the analysis of government expenditure growth. Public Finance Quarterly, Vol. 7, No. 1, pp. 3—23. https://doi.org/10.1177/109114217900700101
48. Poterba J. (1994). State responses to fiscal crisis: The effects of budgetary institutions and politics. Journal of Political Economy, Vol. 102, No. 4, pp. 799—821. https://doi.org/10.1086/261955
49. Rattso J. (2004). Fiscal adjustment under centralized federalism: Empirical evaluation of the response to budgetary shocks. FinanzArchiv, Vol. 60, No. 2, pp. 240—261. https://doi.org/10.1628/0015221041525750
50. Roubini N., Sachs J. (1989). Government spending and budget deficits in the industrial countries. Economic Policy, Vol. 4, No. 8, pp. 100—132. https://doi.org/10.2307/1344465
51. Saunoris J. (2015). The dynamics of revenue-expenditure nexus: Evidence from the US state government finances. Public Finance Review, Vol. 43, No. 1, pp. 108—134. https://doi.org/10.1177/1091142113515051
52. Snoddon T. (2004). Budgetary shocks and revenue adjustment: How governments respond to unexpected fiscal shocks. Economics of Governance, Vol. 5, No. 2, pp. 149—166. https://doi.org/10.1007/s10101-003-0070-6
53. Snudden S. (2016). Cyclical fiscal rules for oil-exporting countries. Economic Modelling, Vol. 59, No. C, pp. 473—483. https://doi.org/10.1016/j.econmod.2016.08.009
54. Sole-Olle A., Sorribas P. (2012). The dynamic adjustment of local government budgets: Does Spain behave differently? Applied Economics, Vol. 44, No. 25, pp. 3203—3213. https://doi.org/10.1080/00036846.2011.570723
55. Strawczynski M., Zeira J. (2013). Procyclicality of fiscal policy in emerging countries: The cycle is the trend. In: L. F. Céspedes, J. Galí (eds.). Fiscal policy and macroeconomic performance, Vol. 17. Central Bank of Chile, pp. 427—466.
56. Sutherland D., Hoeller P., Egert B., Roehn O. (2010). Counter-cyclical economic policy. OECD Economics Department Working Paper, No. 760. https://doi.org/10.2139/ssrn.1604410
57. Sutherland D., Hoeller P., Merola R. (2012). Fiscal consolidation: How much, how fast, and by what means? OECD Economic Policy Papers, No. 1. https://doi.org/10.2139/ssrn.2060104
58. Vamvoukas G. (2011). The tax-spend debate with an application to the EU. Economic Issues, Vol. 16, Part 1, pp. 65—88.
59. Wildavsky A. (1975). The politics of the budgetary process. Boston: Little, Brown & Company.
60. Woodridge J. M. (2010). Econometric analysis of cross section and panel data. Cambridge: MIT Press.
Review
For citations:
Gurvich E.T., Krasnopeeva N.A. Analysis of tax-spend nexus for Russian regional budgets. Voprosy Ekonomiki. 2020;(2):5-29. (In Russ.) https://doi.org/10.32609/0042-8736-2020-2-5-29
Views:
2108
Email this article 
