In this paper we present theoretical framework for quantitative assessment of tax burdens on investments in physical, human and R&D capital in Russia. The modified and extended version of King–Fullerton model for computation of marginal effective tax rates on marginal hypothetical investments was used. Calculations performed show non-neutrality of tax treatment of investment across types of assets and types of financing. Debt financing receives preferential tax treatment, while the less favorable is financing through retained earnings. The most preferential treatment receives household investment in higher education. Combined tax and budget system as of now provide significant subsidies to "free of charge" education in state institutions and fairly small subsidies to "paid" higher education in commercial sector. "Subsidizing" effect shrinks rapidly with continuing commercialization of higher education. Calculated estimates of tax burdens on investment in physical capital are more or less compatible with those in the OECD countries. The less favorable tax treatment in Russia is on investment in R&D. Tax burdens are especially high for short-lived successful investment and almost prohibitively high for partially unsuccessful R&D investment projects. Such tax treatment of R&D investment contrasts sharply with practices of many OECD countries, which provide tax incentives to risky investment and where governments share risks with private investors. Simulations performed showed that certain adjustments in the Russian Tax Code could reduce the tax load on investment in risky R&D projects. Analysis of sensitivity of computed tax burden to estimated parameters is done.
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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number
05-16e.
Length: Date of creation: 24 Nov 2005 Date of revision: Handle: RePEc:eer:wpalle:05-16e
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Find related papers by JEL classification: H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Rachel Griffith & David Sandler & John Van Reenen, 1995.
"Tax incentives for R&D,"
Fiscal Studies,
Institute for Fiscal Studies, vol. 16(2), pages 21-44, May.
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Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1995.
"Have Tax Reforms Affected Investment?,"
NBER Chapters,
in: Tax Policy and the Economy, Volume 9, pages 131-150
National Bureau of Economic Research, Inc.
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