Are Russian firms being allowed to clean the slate with respect to the Soviet legacy of obsolete capital stock? If estimates of capital productivity and firm-level efficiency in Soviet industry are correct, enterprise managers in Russia's emerging market economy will lobby for high depreciation rates in order to write off as quickly as possible the obsolete capital stock which they inherited. Policy makers, seeking to maintain or expand tax revenues to finance the transition, may resist pressure to allow market forces to value capital and continue to set depreciation rates similar to those in the former Soviet economy. This paper utilizes firm-level data in 1992 and 1995 to investigate the extent to which depreciation rates vary across industries and regions by the size of the firm's capital stock, the intensity of capital use, the size of the firm's workforce, the firm's ownership structure, and whether or not the firm exports any portion of its output. The results indicate that in both 1992 and 1995, state-owned firms reported significantly higher average depreciation rates, and thus faced a lower tax burden, ceteris panibus, than joint ventures, leased firms, joint stock companies, and privately-owned firms. While pragmatic from the policy maker's perspective of maintaining a broad tax base, this result highlights the disproportionate burden imposed on the "engines of transition." Moreover, while economic rationale might explain the higher depreciation rates for exporting firms in 1992, economic rationale is unsatisfactory in explaining why firms in the Central region, particularly those located in Moscow, reported higher depreciation rates in 1995.
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Length: pages Date of creation: 01 Nov 1997 Date of revision: Handle: RePEc:wdi:papers:1997-101
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