Journal of Applied Economic Research
ISSN 2712-7435
Assessment of the Impact of Tax Incentives on Investment Activity in Special Economic Zones of the Russian Federation
Maria O. Kakaulina, Dmitry R. Gorlov
The Financial University under the Government of the Russian Federation, Moscow, Russia
Abstract
The article examines tax incentives established in the special economic zones of the Russian Federation. The topic seems to be extremely relevant, since such an instrument of state support as tax incentives does not have a clear economic efficiency. In this regard, having high hopes for it in the current post-pandemic situation, the state risks depriving many enterprises of the opportunity to carry out their activities uninterrupted. This dictates the need for a comprehensive assessment of the effectiveness of the introduced tax incentives. The purpose of the article is to assess the impact of tax incentives on the investment activity of residents of special economic zones of the Russian Federation in the period 2016-2020. The hypothesis of the study is the absence of a significant impact of tax incentives, as well as the existence of a negative impact of such benefits on the investment activities of residents of special economic zones of the Russian Federation in some cases. The assessment is carried out by building power econometric models for all zones in the aggregate for each year of the five years under consideration. As a result, a significant positive relationship was found between the number of tax benefits for the previous time period and the volume of investments made within the zones in the current time period. Thus, a 2-fold increase in the intensity of the use of tax benefits by residents of the zones causes an increase in the size of current investments by 60-74%, depending on the period under consideration. The authors concluded that, contrary to popular belief about the inefficiency of tax incentives and their harmful impact to the budget system in the form of shortfalls in tax revenues, they are actually a unique and useful tool that promotes business development in specific areas. The practical significance of the study is expressed in the possibility of the Government of the Russian Federation applying the obtained results when making decisions on expanding the list of tax incentives operating in special economic zones or on extending their period of validity.
Keywords
investment activity; investments; tax incentives; fiscal stimulus; special economic zones; residents; investment attractiveness rating; cash-flow return on investment
JEL classification
H25, H32, Е22, О11References
1. Kharin, A.G., Tomkovich, A.V. (2017). Otsenka vliianiia nalogovykh stimulov na investitsionnuiu deiatel'nost' v osoboi ekonomicheskoi zone v Kaliningradskoi oblasti (Assessing the impact of fiscal incentives on investment activities in the Kaliningrad Special Economic Zone). Ekonomicheskii analiz: teoriia i praktika (Economic Analysis: Theory and Practice), Vol. 16, Issue 6, 1000–1011. DOI: 10.24891/ea.16.6.1000. (In Russ.).
2. Spinanger, D. (1984). Objectives and Impact of Economic Activity Zones – Some Evidence from Asia. Review of World Economics (Weltwirtschaftliches Archiv), Vol. 120, No. 1, 64–89. Available at: www.jstor.org/stable/40439205.
3. Rubin, M. (1985). Urban Enterprise Zones in the U.S.: a survey of state incentives. Proceedings of the Annual Conference on Taxation Held under the Auspices of the National Tax Association-Tax Institute of America, Vol. 78, 207–215. Available at: www.jstor.org/stable/42911684.
4. Funkhouser, R., Lorenz, E. (1987). Fiscal and employment impacts of enterprise zones. Atlantic Economic Journal, Vol. 15, 62–76. DOI: 10.1007/BF02316849.
5. Jasiniak, M., Koziński, J. (2017). Tax incentives as an instrument attracting investors to Special Economic Zones. e-Finanse: Financial Internet Quarterly, Vol. 13, Issue 2, 36–44. Available at: sciendo.com/pdf/10.1515/fiqf-2016-0021.
6. Wang, J. (2013) The Economic Impact of Special Economic Zones: Evidence from Chinese Municipalities. Journal of Development Economics, Vol. 101, 133–147. DOI: 10.1016/j.jdeveco.2012.10.009.
7. Sinenko, O.A. (2019). Privlekatelnost fiskalnykh instrumentov razvitiia predprinimatelstva na Dalnem Vostoke Rossii (The Attractiveness of Fiscal Instruments for the Development of Entrepreneurship in the Far East of Russia). Vestnik UrFU. Seriia ekonomika i upravlenie (Bulletin of Ural Federal University. Series Economics and Management). Vol. 18, No. 1, 86–103. DOI: 10.15826/vestnik.2019.18.1.005. (In Russ.).
8. Sinenko, O.A., Mayburov, I.A. (2017). Comparative Analysis of the Effectiveness of Special Economic Zones and Their Influence on the Development of Territories. International Journal of Economics and Financial Issues, Vol. 7, Issue 1, 115–122.
9. Niyazova, M.V. (2020). The Influence of a Special Legal Regime for Entrepreneurial Businesses on Economy of the Russian Far East. Advances in Economics, Business and Management Research, Vol. 128, 109–118.
10. Kuzmenko, O.A., Pelkova, S.V., Lukianenko, O.V., Fomichev, I.Y. (2018). Comparative Analysis of Taxation for Special Economic Zones in Russia and APEC Economies. European Research Studies Journal, Vol. XXI, Special Issue 1, 219–242.
11. Fitria, R., Hendrawan, A., Setyowati, M. (2019). Income Tax Incentives Policy in Special Economic Zones. Proceedings of the 1st International Conference on Anti-Corruption and Integrity – Volume 1: ICOACI. SCITEPRESS – Science and Technology Publications, 239–245. DOI: 10.5220/0009402502390245.
12. Kachur, R. (2002). Impact of Special Economic Zones on regional investment in Ukraine. Kyiv, Mohyla Academy, 59 p.
13. Steenbergen, V., Javorcik, B. (2017). Analysing the impact of the Kigali Special Economic Zone on firm behaviour. Working Paper F-38419-RWA-1. London, International Growth Centre, 58 p.
14. Megersa, K. (2019). Review of Tax Incentives and Their Impacts in Asia. K4D Helpdesk Report. Brighton, UK, Institute of Development Studies, 20 p.
15. Chaurey, R. (2014). Location-Based Tax Incentives: Evidence from India. CDEP-CGEG WP No. 14. US, Columbia, Center for Development Economics and Policy (CDEP), 66 p.
16. Liu, Z., Wu, H., Wu, J. (2019). Location-based tax incentives and entrepreneurial activities: evidence from Western Regional Development Strategy in China. Small Business Economics, Vol. 52, 729–742. DOI: 10.1007/s11187-017-9982-3.
17. Abramovsky, L., Bird, N., Harris, T., Tyskerud, Y., Weldeabzgi, A., Beyene, Y.A., Abrokwah, E., Keable-Elliott, I. (2018). Review of Corporate Tax Incentives for Investment in Low- and Middle-Income Countries. London, UK, Institute for Fiscal Studies, 48 p.
18. Wu, M., Liu, C., Huang, J. (2021). The Special Economic Zones and innovation: Evidence from China. China Economic Quarterly International, Vol. 1, Issue 4, 319–330. DOI: 10.1016/j.ceqi.2021.11.004.
19. Nazarczuk, J., Cicha-Nazarczuk, M. (2021). What are the Key Location Factors for Firms in Special Economic Zones? Evidence from Poland. European Research Studies Journal, Vol. XXIV, Issue 1, 147–160. Available at: www.ersj.eu/journal/1955.
20. Pavlov, P.V., Makarova, E.L., Bakalarczyk, S.M. (2019). Free Economic Zones: Global experience, perspectives and concept of development in global practice. Revista ESPACIOS, Vol. 40, No. 28. Available at: www.revistaespacios.com/a19v40n28/19402812.html.
21. Nam, C.W., Radulescu, D.M. (2004). Do Corporate Tax Concessions Really Matter for the Success of Free Economic Zones? Economics of Planning, Vol. 37, 99–123. DOI: 10.1007/s10644-004-6831-6.
22. Klemm, A. (2010). Causes, benefits, and risks of business tax incentives. International Tax and Public Finance, Vol. 17, 315–336. DOI: 10.1007/s10797-010-9135-y.
23. van Parys, S., James, S. (2010). The effectiveness of tax incentives in attracting investment: panel data evidence from the CFA Franc zone. International Tax and Public Finance, Vol. 17, 400–429. DOI: 10.1007/s10797-010-9140-1.
24. Komleva, V., Belyaeva, O., Tsepilova, E. (2020). Tax incentives in Special Economic Zones: Russian and foreign experience. Proceedings of the 34th International Business Information Management Association Conference (IBIMA). Madrid.
25. Heitmuller, F., Mosquera, I. (2021). Special Economic Zones Facing the Challenges of International Taxation: BEPS Action 5, EU Code of Conduct, and the Future. Journal of International Economic Law, Vol. 24, Issue 2, 473–490. DOI: 10.1093/jiel/jgab019.
26. Mayburov, I.A., Ivanov, M.Iu. (eds). (2017). Osobye ekonomicheskie zony. Zarubezhnyi i otechestvennyi opy [Special Economic Zones. The experience of Russia and other countries]. Moscow, YuNITI-DANA. (In Russ.).
27. Kakaulina, M.O. (2018). Territorii operezhaiushchego sotsialno-ekonomicheskogo razvitiia: effektivnost funktsionirovaniia i rol v formirovanii optimalnoi nalogovoi nagruzki v regione (Priority Socio-Economic Development Areas: Their Effectiveness and Role in the Formation of an Optimal Tax Burden). Ekonomika, nalogi, pravo (Economics, Taxes, and Law), Vol. 11, No. 4, 78–89. DOI: 10.26794/1999-849X-2018-11-4-78-89. (In Russ.).
28. Ciżkowicza, P., Ciżkowicz-Pękałaa, M., Pękałaa, P., Rzońcaa, A. (2021). Why do some Special Economic Zones attract more firms than others? Panel data analysis of Polish Special Economic Zones. Prague Economic Papers, Vol. 30, No. 1, 61–89. DOI: 10.18267/j.pep.763.
29. Dzung, N.T., Tuan, N.A., Tinh, D.P.T. (2017). The Role of Investment Attraction in Vietnamese Industrial Parks and Economic Zones in the Process of International Economic Integration. Journal of Asian Finance, Economics and Business, Vol. 4, No. 3, 27–34. DOI: 10.13
106/jafeb.2017.vol4.no3.27.
30. Frick, S.A., Rodríguez-Pose, A., Wong, M.D. (2019). Towards economically dynamic Special Economic Zones in emerging countries. Economic Geography, Vol. 95, 30–64. DOI: 10.1080/00130095.2018.1467732.
31. Augustyński, I. (2019). The illusions of Special Economic Zones in developed countries. Biblioteka Regionalisty Regional Journal, No. 19, 7–19. DOI: 10.15611/br.2019.1.01.
32. Button, P. (2019). Do tax incentives affect business location and economic development? Evidence from state film incentives. Regional Science and Urban Economics, Vol. 77, 315–339. DOI: 10.1016/j.regsciurbeco.2019.06.002.
33. Nel, E.L., Rogerson, C.M. (2013). Special Economic Zones in South Africa: Reflections from International Debates. Urban Forum. Vol. 24, 205–217. DOI: 10.1007/s12132-012-9184-7.
34. Sosnovskikh, S. (2021). Implementation of the Territories with Special Economic Regimes in the Far East of Russia. International Journal of Economic Policy in Emerging Economies, 26 p. DOI: 10.1504/IJEPEE.2021.10035916.
35. Rothenberg, A.D., Temenggung, D. (2019). Place-Based Policies in Indonesia: A Critical Review. Washington, DC, World Bank, 43 p. Available at: hdl.handle.net/10986/32593.
About Authors
Maria Olegovna Kakaulina
Candidate of Economic Sciences, Associate Professor, Department of Public Finance, Faculty of Finance, The Financial University under the Government of the Russian Federation, Moscow, Russia (127015, Moscow, Butyrskaya street, 79); ORCID 0000-0002-2148-6236; e-mail: beuty1@mail.ru.
Dmitry Romanovich Gorlov
Trainee Researcher, Center for Financial Policy, Department of Public Finance, Faculty of Finance, The Financial University under the Government of the Russian Federation, Moscow, Russia (143005, Odintsovo, Govorova street, 28); ORCID 0000-0002-0636-4492; e-mail: gorlovdmitry7@gmail.com.
For citation
Kakaulina M.O., Gorlov D.R. Assessment of the Impact of Tax Incentives on Investment Activity in Special Economic Zones of the Russian Federation. Journal of Applied Economic Research, 2022, Vol. 21, No. 2, 282-324. DOI: 10.15826/vestnik.2022.21.2.011.
Article info
Received March 20, 2022; Revised April 23, 2022; Accepted May 22, 2022.
DOI: http://dx.doi.org/10.15826/vestnik.2022.21.2.011
Download full text article:
~986 KB, *.pdf
(Uploaded
03.07.2022)
Created / Updated: 2 September 2015 / 20 September 2021
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
Contact us
Rector's Office
Rector, Dr. Victor Koksharov
Tel. +7 (343) 375-45-03, e-mail: rector@urfu.ru
Vice-Rector for International Relations, Dr. Maxim Khomyakov
Tel. +7 (343) 375-46-27, e-mail: Maksim.Khomyakov@urfu.ru