Rationality of the Tax and Economic Behavior of Enterprises in the Russian Forestry Sector

The study focuses on the problem of rationality of economic entities, in particular the rationality of their tax and economic behavior in a given period. The data on enterprises in the Russian foreign sector are used to examine the relationship between the levels of rationality observed in their economic and tax behavior. The representative sample includes 1,206 micro-, small and medium-sized enterprises that specialize in logging, wood processing and wholesale timber trade and have forest lease agreements. The study covers the period from 2017 to 2021. Rationality of corporate behavior is understood as profit maximizing behavior or, in other words, as companies’ pursuit of maximum utility. Our theoretical review of the research on rationality in economic and tax behavior has led us to formulate the following assumptions. In economic behavior, rationality manifests itself primarily in companies’ efforts to improve the efficiency of resource use (labor, finance, and tangible assets). Rationality in tax behavior is associated with companies’ efforts to minimize their tax expenditures. Therefore, to assess the rationality of economic behavior, we used such indicators as labor productivity, return on own capital, return on borrowed capital, return on fixed assets, return on operating assets, business profitability, the stage of the lifecycle, and tax risk management. To assess rationality of tax behavior, we estimated the level of audit risk, that is, each company’s chances of being audited. Our study has confirmed the hypothesis that the rationality of tax and economic behavior has an inverse relationship. In other words, the more rational is the economic behavior of a firm, the less rational is its tax behavior. The strength of this relationship is impacted by three main factors: 1) the size of a business; 2) the level of opportunism; and 3) the type of activity. For the enterprises in the forestry sector covered by our analysis, we found that a change in the level of rationality of their tax behavior in 72.9% of cases leads to a change in the level of rationality of their economic behavior.