The Marginal Excess Burden of Taxes in the Russian Transition

Taxes distort the equilibrium prices and allocation, the result is efficiency losses, i.e. the decrease of household's utility levels. If taxes change the utility levels also change and additional income is required to compensate these changes. This additional income excesses the increment of tax collection. The difference between additional compensated income (ACI) and increment of collected taxes is called the excess tax burden. Marginal excess burden of tax (MEB) is the ratio of ACI to the increment of tax levies. Here we study MEB on the base of single product static equilibrium models. We have got formula of MEB for all federal taxes in Russian economy. On the base of economic data the efficiency losses were estimated for Russian economy in 1996. The Russian society losses in average 67 kop on each ruble of tax collection. The losses of distributive pension system were equal to 48 kop on every ruble of pension fund. These numbers show that the tax reform is necessary. They show also that excess burden has to be taken in consideration in cost benefit analysis.