Sustainability Of Regional Economic System

Abstract

Tax revenues are the main source of replenishment of the revenue side of the budget, which allows us to solve problems associated with the sustainable development of individual territories. As one of such factors is the shadow economy, the main effect of which is appearance of the tax losses of the budget. The aim of this study is to quantify the tax losses of the regional budget from the shadow economy and determine their impact on the sustainable development of the territory. Justification of the need for a systematic determination of tax losses from the shadow economy to conduct an effective regional fiscal policy. To assess the impact of the shadow economy on the value of tax revenues of regional budget is used the method of differences based on comparison of data obtained from different sources. Conducted the study assessment of the tax losses of the regional budget have led to the conclusion that the shadow economy has a significant impact on the amount of tax revenues and, accordingly, reduces the possibility of the implementation of socio-economic policy of the subject and does not allow solving problems associated with the sustainable development of individual territories. Therefore, the reduction of tax losses of the budget from the shadow economy is one of the most important conditions for the sustainable development of the region.

Keywords: Budgetmanagementnon-observed (shadow) economyregionsustainable developmenttax losses

Introduction

Stability of the tax system and balanced budget are the most important conditions for the economic growth of the country. However, the current state of the budget and tax systems in Russia is hardly stable.

Problem Statement

It should be noted that, in spite of the obvious importance of the issue under consideration, there is no generally accepted scientific methodology to estimate the tax losses to the budget from the non-observed (shadow) economy.

Research Questions

The absence of a generally accepted definition of an unobservable economy, as well as a generally accepted methodology for assessing its size, predetermined the need to find answers to the following questions:

• What is the economic nature and structure of an unobservable economy?

• What is the tax loss of the budget from an unobservable economy?

• How tax budget losses from an unobservable economy affect the sustainability of the regional economic system?

• Is it possible to achieve the sustainability of the regional economic system if there is a high level of unobserved economy in the region?

Purpose of the Study

The purpose of this study is to determine the impact of tax budget losses from an unobserved economy on the sustainable development of regions. To achieve this goal, the primary task is to develop a method for assessing budget tax losses from an unobserved economy at the regional level. The lack of a generally accepted methodology is an important problem, as it creates difficulties in the inter-regional comparison.

Research Methods

We propose to assess the tax losses to the regional budget from the non-observed (shadow) economy based on individual income tax. This approach is built upon the method of discrepancies, based on the comparison of data obtained from various sources.

We compare the actual amount of individual income tax received by the consolidated budget of the constituent region (according to the data from the Federal Tax Service (FTS)) and the theoretical amount of tax calculated on the basis of information provided by the Federal State Statistics Service (Rosstat). Thus, the amount of shadow economy tax losses to the budget based on individual income tax is determined in accordance with the formula 1.

${TLB}_{PIT}={PIT}_T-{PIT}_A,$ (1)

where ${TLB}_{PIT}$ – is the amount of shadow economy tax losses to the budget based on individual income tax, ${PIT}_T$ – is the amount of tax that should theoretically go to the budget without the influence of the shadow economy, ${PIT}_A$ – is the amount of tax actually received by the budget.

The theoretical amount of individual income tax is defined as the product of the current tax rate times the amount of the tax base (minus social transfers and tax deductions granted).

${PIT}_T={TR}_{PIT}\times \left({TB}_{PIT}-ST-{TD}_{PIT}\right),$ (2)

where ${PIT}_T$ – is the amount of tax that should theoretically be received by the budget without the influence of the shadow economy, ${TR}_{PIT}$ – is the 13% individual income tax rate (the flat individual income tax rate since 2001), ${TB}_{PIT}$ – is the tax base, $ST$ – is the amount of social transfers, ${TD}_{PIT}$ – is the amount of tax deductions granted.

Findings

According to the presented formulas, we made calculations of tax losses from the non-observed (shadow) economy to the consolidated budget of Amurskaya Oblast.

The choice of this region is justified by the results of earlier studies on the spatial distribution of the non-observed economy in the constituent regions of the Russian Federation, according to which Amurskaya Oblast belongs to regions with high risks of developing shadow economic activities.

The impact of tax losses from an unobservable economy on the sustainability of a regional economic system

The systematic calculation of tax losses is essential not only to understand how much the budget is losing from the activities of the informal sector, but also to determine the effectiveness of fiscal policy.

Therefore, the tax collection indicator plays an important role in assessing the quality of fiscal management.

However, the “paid / accrued” approach adopted in the professional tax environment does not give a complete assessment of the tax collection rate, since it includes only the “open” part of tax base without the deducted component. In addition, this method does not allow estimating the potential amount of additional revenues to the budget by reducing the scale of the non-observed economy (Gurvich & Suslina, 2015).

The most thorough and comprehensive view of the tax collection rate can be obtained by including shadow economy tax losses in the calculations, which becomes possible when using a macroeconomic approach to calculating the tax collection rate.

The method entails determining the ratio between the amount of actually collected tax payments and their theoretical (estimated) value, that is, the amount that should be received by the budget from the same tax base, but without the influence of the shadow economy.

Figure 1 shows that revenues from individual income tax are only half-included in the budget, which also indicates the significant scale of the non-observed economy in the reviewed period.

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Conclusion

The study clearly demonstrates the fact that over a long period of time a significant part of the tax potential of Amurskaya Oblast has been concentrated in the non-observed sector of the economy, while the region has been attracting government funding to perform functional tasks all this time, and nowadays it has to spend considerable funds to settle its debt to the federal government.

To summarize, it is impossible to ensure the growth of tax revenues to the regional budget and raise the tax collection rate without a reduction in the level of the non-observed economy, which is the reason why the budget annually loses a significant part of tax revenues. This makes it impossible to solve the problems associated with the sustainable development of the region.

Acknowledgments

This study was supported by a grant from the RFBR № 18-010-00792 “Research the spatial differentiation factors of the non-observed economy, ensuring balanced development of the Russian Far East”.

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