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Strategic tax collection and fiscal decentralization: the case of Russia

  • Alexander Libman

    ()

    (University of Mannheim)

  • Lars P. Feld

    ()

    (University of Heidelberg)

In a centralized federation, where tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities because of a variety of reasons. These range from tax competition to principal-agent problems, state capture and benefits of fiscal equalization. In this paper we discuss strategic tax auditing and collection from the perspective of fiscal federalism and test for strategic tax collection empirically using data of the Russian Federation. Russia’s regional authorities in the 1990s have always been suspect of tax auditing manipulations in their favor. However, in the 2000s increasing bargaining po¬wer of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favor of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period after exclusion of outliers; the results for the Putin period are however rather ambiguous.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/11.

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Length: 66 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:ieb:wpaper:2009/10/doc2009-11
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  1. Ponomareva, Maria & Zhuravskaya, Ekaterina, 2004. "Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution or Russian Resistance?," CEPR Discussion Papers 4267, C.E.P.R. Discussion Papers.
  2. Roger Congleton & Andreas Kyriacou & Jordi Bacaria, 2003. "A Theory of Menu Federalism: Decentralization by Political Agreement," Constitutional Political Economy, Springer, vol. 14(3), pages 167-190, September.
  3. Maria Ponomareva & Ekaterina Zhuravskaya, 2004. "Federal tax arrears in Russia "Liquidity problems, federal redistribution or regional resistance?"," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 373-398, 09.
  4. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
  5. Rudiger Ahrend, 2005. "Speed of Reform, Initial Conditions or Political Orientation? Explaining Russian Regions' Economic Performance," Post-Communist Economies, Taylor & Francis Journals, vol. 17(3), pages 289-317.
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