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Tax Incentives under Sanctions: Evidence from Russian Tax Authorities

Author

Listed:
  • Nam T. Vu

    (Miami University)

  • Kiet Tuan Duong

    (University of York)

  • Luu Duc Toan Huynh

    (Queen Mary University of London)

Abstract

We examine how having access to tax incentives can act as a novel channel through which firms can alleviate the effects of economic sanctions. By leveraging the universe of more than eight million unique Russian firm-year observations from 2000 to 2023, we first construct a novel measure of unexpected firm-level tax incentives orthogonal to firm fundamentals and other predictable incentives. Using such a measure, we show that firms receiving tax incentives the year prior to the sanctions imposed on Russia in 2014 exhibit higher capital investments and returns on assets than firms without such incentives. These improved outcomes are shown to be linked to the corresponding increases in both revenue and profits and a decrease in their overall labor costs ex-post. Such results are qualitatively consistent with a stylized New-Keynesian model where firms are able to leverage unexpected tax incentives to offset production costs.

Suggested Citation

  • Nam T. Vu & Kiet Tuan Duong & Luu Duc Toan Huynh, 2025. "Tax Incentives under Sanctions: Evidence from Russian Tax Authorities," Working Papers 121, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    • Handle: RePEc:cgs:wpaper:121
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    File URL: http://cgr.sbm.qmul.ac.uk/CGRWP121.pdf
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    References listed on IDEAS

    as
    1. Andrei Yakovlev, 2001. "'Black Cash' Tax Evasion in Russia: Its Forms, Incentives and Consequences at Firm Level," Europe-Asia Studies, Taylor & Francis Journals, vol. 53(1), pages 33-55.
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    4. Dzhamilya Nigmatulina, 2022. "Sanctions and misallocation. How sanctioned firms won and Russia lost," CEP Discussion Papers dp1886, Centre for Economic Performance, LSE.
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    6. Becko, John Sturm, 2024. "A theory of economic sanctions as terms-of-trade manipulation," Journal of International Economics, Elsevier, vol. 150(C).
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    More about this item

    Keywords

    Russian; sanctions; tax incentives;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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