Risks and Efficiency of Tax System at Different Budget System Levels: Revenue Formation and Sharing in the Russian Federation Regions
Risks and Efficiency of Tax System at Different Budget System Levels: Revenue Formation and Sharing in the Russian Federation Regions

Author(s): Rogneda I. Vasilyeva, Rodion Vladiirovich Balakin
Subject(s): National Economy, Economic policy, Public Finances, Fiscal Politics / Budgeting
Published by: Masarykova univerzita nakladatelství
Keywords: tax system; budget; region; Markowitz portfolio theory; risk; profitability; Sharpe ratio;
Summary/Abstract: The research is aimed at analyzing tax systems at the stages of tax revenue formation and its distribution among different budget levels to compare risks and efficiency of tax systems. H. Markowitz portfolio theory is applied to the tax system risk assessment. The deflation of tax revenue and regional gross product (GRP) was employed to adjust the price scale of the analysed time series. The ratio between the tax yield to GRP applied to 8 basic taxes and tax groups was viewed as the profitability of the ‘tax portfolio’. For evaluation of the tax risks we used the intertemporal standard deviation of tax yield ratio to GRP. In order to identify the influence of tax variance and tax covariations on general risk of the tax system at the stages of tax revenue formation and its distribution, decomposition method of tax portfolio risk index is used. W. Sharpe ratio is employed to assess the efficiency of a tax system, on the assumption that riskfree return equals zero. According to the results obtained, Russian tax system shows the highest risks and profitability rates at the stage of federal budget formation, whereas the risks and yield rates of the regional consolidated budgets are lower. It works the same way when it comes to regional tax return’s distribution among regional and local budgets. However the tax system efficiency, according to the calculated Sharpe ratio, at a regional level generally compares favorably with that at the federal or local levels. The policy of interregional inequalities levelling forms the basis of tax return distribution among different budget levels. Hence the federal level shows the highest rate of interregional inequality of tax system efficiency, while regional level is characterized by a lower rate, the lowest one found at the local budget level.

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