Tax Incentives under Sanctions: Evidence from Russian Tax Authorities

Nam T. Vu (), Kiet Tuan Duong () and Luu Duc Toan Huynh ()
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Nam T. Vu: Miami University
Kiet Tuan Duong: University of York
Luu Duc Toan Huynh: Queen Mary University of London

No 121, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

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.

Keywords: Russian; sanctions; tax incentives (search for similar items in EconPapers)
JEL-codes: F51 H25 H71 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:cgs:wpaper:121

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