Impact of Sanctions and Prospects for Bugetary and Tax Policy in Russia

The implementation of the Russia fiscal policy in 2022 is taking place in the context of severe external sanctions, including the freezing of government foreign assets. As theoretical models say an increase in government spending stimulates output growth but household consumption reduces. At the same time, empirical studies of the impact of sanctions show that losses from the simultaneous application of financial sanctions, asset freezing and trade restrictions could amount to 4.0-5.0% of GDP. The state of the federal budget in the first half of 2022 remained stable due to the growth in oil prices. The growth of additional oil and gas revenues of the federal budget covered the increased non-oil and gas deficit. External sanctions and retaliatory measures from the monetary and financial authorities had a critical impact on the state of the domestic government debt market. The return to early 2022 levels came amid falling trading volumes, with no new government bond issues between late February and August 2022.