CHANGING TAX EFFORT IN RUSSIA’S REGIONS; THE IMPACT OF RECENTRALIZATION

We use panel data for 1998 – 2012 and system General Methods of Moments (GMM) specification to test for differences in behavior of resource-rich regions and other Russian provinces due to re-centralization of resource royalties from the region to the center. We ask whether joint taxation of the same tax base by both federal and provincial governments led to vertical externalities and possible over-taxation between federal and regional authorities. We explore whether a shift in the collection of resource taxes from the provinces to the center impacted the size and share of regional tax collection. We find that own tax collections of resource-rich regions declined after re-centralization, while strong vertical externalities persisted between federal and provincial taxes due to joint collection of profit taxes and the overlap between regional income taxes and federal value added taxes.