Assessment of the Behavioral Reaction of Personal Income Tax Evasion in Russia Based on Analysis of Macroeconomic Indicators

Andrey A. Pugachev

Demidov Yаroslavl State University, Yаroslavl, Russia

Abstract

One of the risks of Russia's transition to a five-tier progressive PIT scale from 2025 is tax evasion. The purpose of the study is to assess the behavioral reaction of taxpayers to evade progressive PIT based on the analysis of macroeconomic indicators. Two hypotheses were tested as part of the study. 1. During the transition from a progressive scale to a flat one since 2001, the effect of putting wages "on the books" and reducing the shadow economy was insignificant. 2. With the introduction of an increased PIT rate of 15% starting from 2021, there was no expansion of evasion. To assess the behavioral response of PIT evasion, correlation and regression analysis, OLS, statistical comparative analysis of real chain growth rates and cluster analysis of macroeconomic indicators and indicators of the shadow economy of Russia in 1995-2023, as well as a poll were used. The calculations were carried out in the Excel Data Analysis package. Data from Rosstat and the author's database of an opinion poll were used. A Data Set of 1,400 indicators has been formed. It has been established that the dynamics of macroeconomic indicators in 2001 does not confirm a significant decrease in PIT evasion following the introduction of the flat scale. The growth in income reporting in the economy in 2001 was also influenced by a reduction in the corporate income tax rate from 35% to 24% and the introduction of regression on a single social tax. In 2021, with the introduction of a mild PIT progression, there was no surge in evasion. The behavioral reaction of PIT evasion to the introduction of its five-tier progression from 2025 will also not be significant from the standpoint of state revenue. The more significant risks of an expanding shadow economy are an increase in the income tax rate to 25% and the extension of VAT to taxpayers eligible to the simplified tax regime. The theoretical significance of the study lies in the development of an approach to assessing the behavioral response of PIT evasion. The practical significance is determined by the possibility of using the results in the framework of ongoing and future PIT reforms.

Keywords

PIT; tax evasion; behavioral reaction; macroeconomic indicators; inequality of citizens; shadow economy

JEL classification

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Acknowledgements

The Research was prepared supported by the grant of the Russian Science Foundation No. 23-28-00365, https://rscf.ru/en/project/23-28-00365/

About Authors

Andrey Aleksandrovich Pugachev

Candidate of Economic Sciences, Associate Professor, Researcher, P.G. Demidov Yaroslavl State University, Yaroslavl, Russia, (150003, Yaroslavl, Sovetskaya street, 14); ORCID https://orcid.org/0000-0001-7989-6353 е-mail: andrxim@yandex.ru

For citation

Pugachev, A.A. (2024). Assessment of the Behavioral Reaction of Personal Income Tax Evasion in Russia Based on Analysis of Macroeconomic Indicators. Journal of Applied Economic Research, Vol. 23, No. 4, 951-978. https://doi.org/10.15826/vestnik.2024.23.4.038

Article info

Received August 6, 2024; Revised August 17, 2024; Accepted September 5, 2024.

DOI: https://doi.org/10.15826/vestnik.2024.23.4.038

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