Priority Areas for Strengthening the Tax Capacity of Municipalities in Russia

Leisan A. Gafarova

Journal of Tax Reform, 2025, vol. 11, issue 2, 358-380

Abstract: The purpose of the study is to identify key determinants of local budgets’ tax revenues formation and substantiate priority areas and tools for strengthening the tax potential of municipalities. Based on the methods of regression analysis using cross section data for 62 municipalities of Russia, factors with a high degree of significance were identified: population, average annual number of employees of organizations, number of organizations; and a factor with an average level of significance: the average monthly accrued salary of employees of the organization. The hypothesis of the prevailing influence of quantitative factors on the formation of tax revenues of municipalities has been confirmed. The calculation of the coefficient of variation (41%) demonstrated the heterogeneity of the municipalities in terms of tax income provision. Only a few municipalities have a relatively high level of tax revenues, which demonstrates significant losses in their formation. The analysis showed that in 2023, the maximum value of the tax independence coefficient of local budgets was 0.41, the minimum– 0.12. To assess the tax potential, a modified method of marginal tax revenues was developed in the regionally determined conditions of the functioning of municipalities. It was revealed that the total tax potential of municipalities is 1.83 times higher than the actual tax revenues, that is, the tax potential of municipalities is used only by 54.6%. As the main measures to increase tax revenues, it is proposed: strengthening tax administration of areas of activity with increased social and environmental risks, creating new institutions for improving tax processes.

Keywords: tax revenue; tax capacity; local government budget; municipality; factor; regression analysis (search for similar items in EconPapers)
JEL-codes: H21 R50 R51 R58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:11:y:2025:i:2:p:358-380

DOI: 10.15826/jtr.2025.11.2.206

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