Increasing the VAT Rate in Russia from the Position of the Laffer Curve

Alexey Kalinin

Studies on Russian Economic Development, 2022, vol. 33, issue 3, 353-358

Abstract: Abstract— One simple economic model, frequently cited but difficult to empirically calculate, is the Laffer curve: the relationship between the level of taxation and tax revenues. The increase in the VAT rate in Russia from 18 to 20% since 2019 can be considered as an empirical test of the existence of patterns in the Laffer curve at a particular point in time. From the Laffer curve it follows that with an increase in the tax rate, revenue should increase at a slower rate. In contrast, the volume of VAT payments in 2019 increased at a faster pace than the growth in value added. The paper proposes an explanation of this contradiction in terms of the impact of efforts to ensure tax collection. Increase in the basic tax rate by 2% pp led to a reduction in the return on efforts to ensure the collection of the tax. A five-year period of fast outpacing tax revenue growth came to an end almost simultaneously with the increase in the VAT rate. We can conclude that the economy, even with a relatively small increase in the tax rate, predictably reduces the ability of the state to extract additional income.

Keywords: VAT; Laffer curve (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1134/S1075700722030042

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