Content №2 от 2021
Tax Decentralization of Municipalities: How Could Implicit Interregional Interaction Be Used?
This paper aims to improve the methodological tools for analyzing the spatial effects of intraregional fiscal decentralization and suggest a way to increase the municipalities' tax potential in Russia. The growth of local tax powers - a key element of broader fiscal decentralization - is favorable for the efficiency of budget expenditures, local development, and improvement of quality of life.
In this paper, the indicator of intraregional fiscal decentralization is the share of local budgets’ revenues from personal income tax (PIT) in consolidated regional revenues from PIT, i.e., the share of local PIT. We use structural and spatial correlation analysis, grouping and analysis of regional legislation.
The article reveals the lack of growth of local authorities’ tax powers in 2014-2018, which underscores the problem of small local powers. It is established that the decentralization of PIT is present only if there is a small tax potential of a region, and as the latter grows, the former decreases. This indicates a lack of positive fiscal incentives to exercise effective local spending and develop the tax base.
We propose and test a method of analyzing the spatial effects of the share of local PIT and discover that the spatial effects are present and positive. This points to inter-regional cooperation in the field of fiscal policy; that is, the regions are guided by each other while tackling the issue of intraregional tax decentralization. We also suggest a method for allocating general grants from the federal government to foster the local tax potential, using the spatial effects found. It is shown that neighboring regions will coordinate their intraregional tax decentralization, which will increase the amount of funds disposable by municipalities by a larger amount than the amount of the transfer allocated. The results can be used in the federal policy of increasing local tax powers and capacity.
