Tax Revenues, public investments and economic growth rates: evidence from Russia

This article analyzes the economic effects of public investments in Russia. The correlation between gross regional product growth rates and public capital accumulation has been identified. It has been found that regional investments stimulate growth much better than federal ones. Therefore, the transfer of federal resources to regional levels, as well as a more precise tailoring of investment policies to the needs of individual territories, should contribute to a rise in productivity and an increase in regional growth rates. The findings show that investments from subnational budget sources are closely correlated to regional tax revenues. Therefore, the fine-tuning of the revenue-sharing mechanism in the larger fiscal federalism framework, the expansion of the regional tax base, the improvement of tax collection and tax administration systems, and other related measures represent the main focus areas for expanding investment opportunities at the provincial level. In the long term, this way of regional development is expected to be more efficient and sustainable compared to the current emphasis on the implementation of large developmental projects at the expense of the federal budget. These aspects of Russia’s experience seems to be valid for the entire Eurasian continent, as seen by the scale of infrastructure projects initiated there in recent years under the framework of “One belt-One Road” and other development initiatives Highlights  1. Subnational investments from regional budgets positively influence the rate of regional development, whereas the role of federal investment, most often, is negative or statistically insignificant 2. The fine-tuning of the revenue-sharing mechanism, the expansion of the regional tax base, the improvement of tax collection and tax administration systems, and other related measures represent the main focus areas for expanding investment opportunities at the provincial level 3. Since federal investments are considered inferior to regional ones in terms of provincial growth stimulation, transferring most of the investment resources to the subnational level could be beneficial for overall growth rates 4. Comprehensive use of local resources for federal construction projects allows to maximize the macroeconomic effects not only in Russia, but also in several Eurasian states, currently implementing large-scale infrastructure development initiatives For citation Belov A. V. Tax Revenues, public investments and economic growth rates: evidence from Russia. Journal of Tax Reform, 2018, vol. 4, no. 1, pp. 45–56. DOI: 10.15826/jtr.2018.4.1.044 Article info Received February 10, 2018; accepted March 23, 2018