Sub-Federal Tax Exemptions in Russia: Less Taxes, More Investment?
The federal structure of Russia allows local authorities to determine independently some business taxes, thus opening up the opportunity to influence the business climate in order to attract mobile factors in economic development. This paper reveals the trends in the granting of regional tax exemptions and estimates their effects on the attraction of investment. The panel data embraces the characteristics of regional legislation and the indices of regional economic development for 72 regions over the period 1992–1998. The main conclusions of the study are: 1) regional investment legislation has an essential and positive impact on investment attraction, but can not itself be an engine of regional economic development; 2) the inter-regional diffusion of investment-related sub-federal laws has a tendency to increase the level of tax reliefs, as well as their period and flexibility; 3) more active in the adoption of investment legislation are those regional authorities that have higher estimations of the lack of investment and risk.
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