Estimation the impact of VAT increase on consumer price dynamics in the regions of the Far East

About the author:

Maria O. Kakaulina, Cand. Sci. (Econ.), Associate Professor, Department of Public Finance, Financial University under the Government of the Russian Federation (Chelyabinsk); beuty1@mail.ru; ORCID: 0000-0002-2148-6236

Abstract:

This paper deal with problem of estimation the impact of VAT increase on consumer price dynamics in certain regions. We follow a general methodology for assessing the effects of some economic indicators on others using econometric modeling, but with a number of methodological improvements.

We carry out a quantitative assessment using a dynamic econometric model of dependence of the consumer price index (CPI) on the growth rate of VAT tax burden, which was calculated based on data from Rosstat and the Federal Tax Service of Russia. An additional factor of the model is the level of socio-economic situation of the Russian regions, represented as the total score of each region in the integrated rating developed by the RIA Rating Agency.

The obtained results indicate that an increase of VAT tax burden contributes to an increase of consumer prices in the Far Eastern regions. Moreover, the magnitude of the effect is not the same everywhere. According to our forecasts, the largest increase in prices for various groups of goods and services in 2020 should be expected in the Kamchatka Territory, Khabarovsk Territory and the Magadan Region. In 2020, inflation here may amount to 11.4%, 8.3% and 7.3%, respectively, exceeding the value set as the upper limit of 4%.

To solve this problem, we propose to establish the percentage of VAT deductions to the regional budgets and to provide regional authorities with the authority to manage the VAT rate to be credited to these budgets.

The results of the study can be used in the activities of the Ministry of Economic Development of the Russian Federation and the Bank of Russia in making forecasts of inflation, as well as in the activities of the Ministry of Finance of the Russian Federation in the development of amendments to existing tax legislation.

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