Реферат: Russian Federation Country Study. A Public Finance Perspective



RyanGrace rgrace@indiana.edu
Dmitri Maslitchenko dmitri@mailroom.com
David Lamp dlamp@indinana.edu


Political Background

The separation of powers which existedunder the Soviet constitution was essentially a myth. A Russian accuratelycharacterized the relationships that existed between party, state and societyas, ...The state absorbed the society, the Party absorbed the state, and theParty appartchiks, the nomenclature under the totalitarian leadership of theSecretary-General absorbed the Party." Both legislative and judicialbranches served as rubber stamps" to the Presidium of the Supreme Sovietwhich unlike the Supreme Soviet itself was constantly in session. Thedevelopment of political reform in the late 1980s weakened the party's controlover the reigns of power. The devolution of power from the Presidium occurredthrough the creation of the office of the President which received theexecutive powers while the legislative powers were assigned to Congress ofPeoples Deputies. The judicial branch also achieved higher visibility duringthe late Soviet period through the creation of the Committee on ConstitutionalSupervision. The Soviet Union's collapse in 1992 introduced radical changesinto all aspects of Russian society. Russia has little experience withdemocracy in any form. Without a strong democratic tradition, it should not beunexpected that instability would develop in all aspects of Russian life. Therole of governmental finance in post-Soviet society is no exception. Competingexplanations exist for Russia's travails but a shared trait of many them is thedistribution of power at the federal level and the relationship between thefederal and sub-national levels of government.

Political problems did not take long todevelop in the Russian Federation after the USSR's dissolution. At the federallevel, the creation of the present constitution is one cause of the instabilitywhich plagues Russia today. After winning a national referendum on August 15,1993 in which the electorate was asked to endorse the Yeltsin's reform policy,he convened a constitutional assembly to ratify his version of the newconstitution. Three drafts were in contention to replace the constitution underwhich the Soviet Union was nominally ruled. Other than Yeltsin's constitutionwhich became the one implemented, the two other variants were the communistdraft which advocated a strong Presidium of the Supreme Soviet with a chairmanwho had similar powers to the position of General Secretary during the Sovietperiod and the Rumyanstev draft which contained plans to restrict executivepower and grant the legislative body wide powers. Yeltsin's draft advocated theexact opposite of the aforementioned plans with wide powers to the executiveand minimal power delegated to the legislative. After the Duma rejectedYeltsin's order to dissolve, he ordered military troops to forcefully evacuatethe building--which they did by shelling it. Briefly, the president is theprotector of the constitution, human rights, and civil liberty. In order toprotect the constitution and the aforementioned rights, the constitution grantsthe president wide injunctive and declarative powers. The former powers consistof the president's ability to use «conciliation procedures to resolve disputesbetween the federal government and the governments of the constituent subjectsand disputes between the various subjects of the federation.» A threestage procedure exists for the adjudication of disputes but his ability tosuspend legislation after it is submitted to the appropriate court" whichhe deems to be in violation of the constitution is considered by many asinappropriate for a fledgling democracy. The President also has the power toissue decrees and orders which are superior to the laws of the government aslong as the decree or order does not violate the constitution. Further, thepresident has the ability to appoint important member of his government withoutconsent for the Duma and has sole power to appoint and remove the commandstructure of the Armed Forces. In regards to the legislature, the president hasthe ability to dissolve the Duma if it passes two no-confidence vote in theRussian government within three months of each other and if it rejects threepresidential nominee for Chairman of the Russian government. Although there arelimitations of the president's ability to dissolve the Duma, it remains apotential weapon against a contentious parliament that affects every aspect ofpublic finance.

The power of the legislative and judicialbranch are limited in relation to the executive. Russia's judicial systemconsists of a several court systems that have different spheres offederal/national jurisdiction." The most visible court is theConstitutional Court which has the right to review the constitutionally of allfederal laws, presidential orders and degrees, legislation of government, andunratified treaties. Challenges to the aforementioned areas must be brought byindividuals with standing. Although the Constitutional Court's power seems vast,the president's expansive powers and lack of civil relations between thedifferent branches makes the Court's utilization of this power suspect. Federallaw and federal constitution laws are the two types of laws which exist in theRussian Federation. The latter is considered superior to federal laws. Theprocedure for enactment differ in each case. Once a bill is passed it mustpresented to the president within five days of the passage by the parliament.The president then has fourteen days to reject the law. In order to veto thefederal law, a two-thirds majority must be gained in both parts of thelegislative assembly. In the case of federal constitutional law, three quartersof the Federation Council and two thirds of the Duma must approve it for enactment.The constitution does not describe any right for the president to veto federalconstitutional laws. According to Article 106 of the Russian Constitution, lawsin regard to the following area must be voted upon by the Federation Council:The federal budget, federal taxes and levies, foreign currencies, customregulation, and currency issuance.


Recently,the Duma rejected the government's first draft of the budget. Deputies weredivided over the size of the projected federal budget deficit, which was set at95.4 trillion rubles or 3.5 percent of GNP. When the budget is rejected by theDuma, the government has 20 days to revise and re-submit the budget. Ifdifferences exist between the government's proposed budget and the Duma's, anoption exists to create a committee to reconcile their disagreements. The Dumarejected the government's proposed 1997 budget in October 1996 and did not optinitially for such a commission. If no budget agreement is reached, parliamentwould be forced to pass monthly or quarterly budgets which would causeconfusion throughout the economy. Since the initial rejection however, areconciliation commission (in which both houses of parliament and thegovernment are represented), has been working on a new version. The reconciliationcommission is due to have a final meeting on Wednesday, with the Duma givingthe budget a new first reading on November 20 or 21. There is no legalframework to cover the failure to pass the budget, but parliament has faced theproblem every year of Russia's independence except 1996 and has in the pastapproved temporary budgets.

The work of the reconciliation commissionis being drawn out because neither the communist majority in parliament nor thegovernment wants to take responsibility for making a decision on the budget.Russia is trying to keep to a small deficit in 1997 under pressure from theInternational Monetary Fund, but the Duma is eager to increase budget spendingto a starved economy. Reform minded deputies want a lower budget deficit toachieve lower credit rates--which they say are vital for economic growth butwhich are kept high through heavy government borrowing. The dilemma is that thecommunists in the parliament want to increase spending and as a majority theycan block implementation of any budget bill.


Russia'stax system is an exercise in frustration for both Russians and foreigners. Theproblem arises because it seems that many taxes spring out of the blue andcarry heavy retroactive penalties" which are often three times the taxamount due. Russian tax reform is difficult now because the governmentdesperately needs money and has little room to maneuver since revenues arestatic and low. The budget take, both federal and regional, came in at just27.3 percent of GDP, compared to 50 percent in the Czech Republic and 47.7% inPoland Russia's budget deficit has been narrowed in recent years, but this onlybeen achieved by cutting back on expenditures in real terms, almost 50 percentfrom 1993 to 1995.

Like the United States, Russia has athree-tiered system of taxation. Federal taxes are enforced by Parliament,regional taxes enforced by the regional councils, and local taxes enforced bythe local authorities. Under the existing system, very little coordination canbe found between the three levels of government which causes serious tax policyproblems. In a 1993 decree, regional and local authorities were given the powerto decide on types and sizes of taxes for their jurisdictions. The hope wasthat authorities at each level, being responsible to its citizens, would actwithin reasonable limits. Local authorities, seeing a way to increase revenue,devised more complicated and exotic taxes. There are 150 locally imposed taxeswithin the Federation. They were competing who would invent the moreinteresting taxes at their respective levels--for example a tax on grazingcattle.

Tax Code

The Russian tax system is very complicated. The first two sections of the newcode have 416 articles which are contained in more that 100 pages--and this isjust an the overview of general principles. In an effort to improve tax law, anew draft of tax code was presented to the Russian parliament in February 1996.Apart from laws, the tax regime is regulated by many other documents. The listof these tax documents includes 900 items. It is understandable that thetaxpayer can be confused by so many documents. Even a good taxpayer can makemistakes. The code is not expected to be enacted this year but it is a goodstep toward improving the clarity of the tax system. The current system,plagued by an excessive tax burden and rampant tax evasion, has seriouslyimpeded tax collection efforts. The proposed draft code seeks to implement anumber of the reforms prevalent in Western economies during the 1980s,including a broadening of the tax base, lowering of tax rates, and thereduction of incentives, exemptions, and deductions.

A new mechanism for tax refunds in the caseof overpayment is also provided in the code. If a taxpayer paid too much tax athis own initiative, the taxpayer may request the overpayment amount be creditedtowards his next payment or be refunded within a specified time limit. If thetime limit was exceeded, the amount would be refunded with interest at ainterest rate tied to the prime rate of the Central Bank. In January 1996, newrules came into effect concerning the refund of VAT if the taxpayer is involvedin exports operations. It was a major problem since VAT refunds were theresponsibility of local budgets. The 1996 budget, which was submitted inmid-August, provided such VAT refunds from special funds of the federal budget.

Overview of Major Taxes


Income tax

Russia's individuals income tax has severalbands which range from 30 to 60 percent. The 60 percent rate is essentially theonly rate in effect for Westerners. In 1993, the tax law was changed. Earlier,individuals could only pay taxes in rubles. Now, taxes on income earned in hardcurrency may be paid in rubles or in hard currency. Proposals to increase theRussian personal income tax rates were rejected by Russia's upper house, so the1995 personal income tax rates remain in effect as of January 1, 1996 (seeappendix). Three tax brackets now exist in the Russian Federation: 12 percenton income up to Rubles. 10 million, 20 percent up to Rubles. 50 million, and 30percent over Rubles. 50 million. The current exchange rate is one dollar toapproximately 4,700 rubles. While many individuals may complain that the higherincome tax rates will cripple them, Russia would still have the lowest personalincome tax rate in Europe at 35 percent.

Excise tax

The excise tax in Russia explicitly coversimported luxury goods, including tobacco products, beer wine and spirits, carsand light truck, tires, jewelry, gemstones, rugs, crystal, fur, and leatherproducts. The rate of excise tax ranges from 10 percent for crystal to 90percent for grain alcohol personal. A new principle was applied, in accordancewith a recent decree, to the calculations of excise taxes on alcohol andtobacco imports. In contrast to the previous practice where excise taxes werecalculated in proportion to the customs value of the imported goods, under thenew procedure, the taxes (on August 1, 1996) will be imposed in ECU per oneunit of commodity item. In some ways, excise taxes and single-stage retailtaxes would seem to be prime candidates for regional taxation in the Russiajust as they are in market economies, especially if the taxing locality islarge enough to avoid revenue loss from consumers crossing the border toregions with lower tax rates Such taxes thus seem more suitable for largerintermediate governments than for small local governments.

Profit tax

The profit tax calls for a 32 percent taxon all profits, with an exception for profits generated by retailers. Profitsby retailers are taxed at a 45 percent rate. The tax discriminates againstRussian workers because the tax is not applied to the wages of foreign workers.The profit tax keeps intact the profit reinvestment concept of prior Soviet taxlegislation. Essentially, no tax is imposed on profits reinvested in thebusiness venture. Also, the government has not changed the 15 percentwithholding rate for interest, dividends, and other passive income. A 20percent withholding rate applies to royalties on copyrights and licenses.


A VAT of 28 percent passed into a law onDecember 6, 1991 and became effective on January 1, 1992. The VAT was notinitially imposed on imports or exports. However, the government changed thepolicy very soon afterwards. For instance Russian neighbor, Ukraine will behappy to realize that Russia imposed a VAT on imported goods originating fromUkraine (Decree No 1216 of August 18, 1996). The reason for the decree is topreserve stability of the Russian commodity market. The decree also takes intoaccount that Ukraine is not a part to an agreement signed by the member statesof the Commonwealth of Independent states on the coordination of tax policy.The general VAT rate as of January 12, 1996, remains at 20 percent. A rate of10 percent applies to certain food items and children's goods. Payment of theprofits tax and VAT of state owned enterprises is centralized at the level oftheir ministries administrative departments (Decision No 629 of May 22, 1996).

Corporate income tax

The corporate income tax has three taxrates and the application is based on the type of income earned. Manufacturingincome is taxed at 18 percent, service income at 25 percent, and income earnedby retailers at 45 percent. One of the most interesting things is that therevenue is not intended to go to the central government. Moreover, the law iswritten that regional authorities can tax corporate profits up to 18 percent,25 percent, and 45 percent.

Sales tax

The sales tax was first introduced onDecember 29, 1990 by USSR Cabinet of Ministers. It was decided to approve alist of goods and services whose sale on USSR territory will not incur the 5percent sales tax. The local and regional authorities may make additions tolist of goods in everyday demand and services to the population which areexempt from the sales tax (see the appendix). population.

Further Drawbacks of the Russian Tax System

Attorneys and tax specialists in Russia saythe greatest problem facing enterprises is the lack of a satisfactory tax code.It is necessary that tax policy should be circumscribed and that more powershould be given to the legislature. The nature of the tax structure allows somepeople to be heroes by breaking the rules. For example, a pharmaceuticalcompany chief who had his security guard expel tax inspectors from his headquarters and vowed to shoot them if they returned, was elected to a seat inParliament instead of going to jail. The penalties for non-payment of taxes isa defiency of the tax system that drives people from the tax system becausethey are so afraid of making a mistake that they prefer not to pay. Forexample, a standard 100 percent fine exists for understating income. Theinterest rate on late payments alone amounts to 0.7 percent a day, or 255percent per annum, a penalty that can dwarf the actual liability. The penaltyamount is presently reduced and is tied to the refinancing rate of the Bank ofRussia. The penalty for each day of delinquent payments would equal 1/300 ofthe prime rate of the Central Russian Bank.

Russia also does not have a specialized taxcourt. To seek justice in tax issues, taxpayers have to find a people's courtwhich is willing to accept the case. The courts do not have expertise in thearea of tax law which is why most of the courts are reluctant to accept taxcases. The lack of legal recourse leads to corruption within the tax collectionsystem. Russia does not have a law like the Freedom of Information Act (FOIA)or the Privacy Act which hinders the accountability of the tax service.

Aside from ample monetary reasons to evadeand avoid taxes, taxes (in the Western sense) did not exist in Russia duringthe Soviet period and therefore the idea of a Western style taxation isunpalatable to many Russians. Taxes began to appear in the USSR only in 1991which means that the current population has only had to deal with the issue oftaxation over a short period of time. The result of this historical experienceis that only between 60 and 75 percent of projected tax revenues have beencollected this year.

Recent attempts to Improve Revenue

Decree No 1212 of August 18, 1996 isdesigned to improve tax collection by preventing tax evasion and streamliningcash and non cash turnover. Among other measures, the decree orders enterprisesin arrears of payments to the government to open settlement accounts in banksor credit institution within the Russian Federation. Those accounts arereferred to as accounts of enterprise in arrears. When requested by the appropriatetax authorities, banks and other credit organizations are required to providedata about the transaction of enterprises holding these accounts. Taxationorgan may refuse to register the account of an enterprise in arrears in casethere are no funds available on the correspondent account of the bank or othercredit organizations. An interesting aspect of this decree is that thegovernment finally began to crack down on misrepresentation «in case ofnoncompliance with this requirement or intentional provision of falseinformation in the notice submitted to taxation organ enterprise in arrearsthat had performed the transactions in question will be fined by the taxationorgan in the amount of the transaction value». It has proposed to improvethe tax system by scrutinizing financial transactions through banks. If anenterprise opens a bank account, the bank or other type of credit institutionmust immediately inform the tax organs about the accounts for tax purposes.Such tax policy will let the tax agencies observe tax payments more efficientlyas everything will be recorded.

Presidential Decree No 1212 of August 18,1996 also introduced policies concerning cases containing the circumstancesstipulated in the Law of the Russian Federation on Insolvency (Bankruptcy) ofEnterprises, the Federal Department on Insolvency (Bankruptcy) at the StateProperty Management Committee of the Russia Federation shall file witharbitration court request to institute proceedings on insolvency (bankruptcy)against enterprises that have repeatedly violated this Decree during onecalendar year. As it was with collective farms and state farms, enterprises canjust change their names and continue to evade taxes. An important issue relatedto insolvency is loss of massive amounts of jobs and what will workers and oneenterprise" towns do for a living and revenue.

On the bases of the decree, the governmenthas widened its crackdown on tax evaders--adding several leading oil companiesto a list of tax delinquents that might be forced into bankruptcy court unlessthey pay their arrears. The move was the latest in a series of desperatemeasures the government is taking to boost tax collection and mend its threadbare budget. The government hopes that by threatening major tax evaders withbankruptcy, they will scare the country's errant tax payers into filling emptycoffers. Major companies targeted for bankruptcy can avoid insolvencyproceedings, if their accounts showed the government owes them an amounts equalto their tax debts for fuel supplied to state organizations.

The most recent step in fighting taxevaders was Russian presidential decree No 1428, (dated (October 11, 1996,which created a Processional Emergency Commission (the Commission) onstrengthening fiscal discipline. The major principals and objectives are:

. Control over the timely and full paymentof taxes and customs and other compulsory payments;. The elaboration ofmeasures to secure a full-scale collection of taxes and other compulsorypayments;. Securing the legality and efficiency of the work of tax andcustoms, as well as tax police agencies;. Control over the timely andspecial-purpose use of the resources of the federal budget and state extrabudgetary funds… Take decisions to carry out checks of the financial andeconomic activity of legal entities and compliance by individuals and entitieswith the tax, customs and banking legislation of the Russian Federation;.Check the operations of tax and customs bodies;

. Organize check of the timely andspecial-purpose use of the resources of the federal budget and state extrabudgetary funds.

In addition, the President granted broadpowers to the Commission to meet the objectives of the decree and secure itsaccountability.

Monetary Policy

Interestrates, much to the chagrin of reformers, in the past barely reacted to currencystabilization and the ensuing drop in inflation. Little confidence existed inthe sustainability of reforms while inflation expectations remained high. In1996, interest rates finally started to come down--albeit slowly. Real interestrates, however, are still very high. As recently agreed by the Russiangovernment and the IMF, the ruble is due to become convertible by 1997. Betteraccess to the ruble market could thus lead to a rapid increase in internationalinterest in the currency. Nevertheless, the ruble is trying to join the club ofrespectable currencies. Due to the establishment of a crawling peg, thecurrency's downslide is almost under control. A generally more stable economicenvironment and high interest rates could make the ruble more attractive. Theruble's recent past has been eventful to say the least. Between January1992--effectively the start of economic reform under Yeltsin--and March1995,the currency depreciated by a massive 2,130 percent. In the second quarterof 1995, an over-restrictive monetary policy led to a severe shortage of thecurrency which then duly appreciated by 15 percent within three months. Asconcerns rose that too rapid currency appreciation would further destabilizethe economy, the free-floating ruble program was abandoned and a 'rublecorridor', which envisaged further depreciation but within predeterminedlimits, was introduced. The ruble corridor program has proven to be quitesuccessful. The Central Bank, which has been intervening repeatedly in themarket, has managed to keep its foreign exchange reserves at a satisfactorylevel, and the business community has been able to rely on a more predictableexchange rate trend. In July 1996, the 'fixed' ruble corridor (the upper andlower limits of which only had to be redefined every few months) wastransformed into a 'variable' ruble corridor, with the band shifting on a dailybasis. Under this program, monthly depreciation now stands at around 1.5 percent.By the end of December 1996, the exchange rate against the dollar should havereached Rb 5,700/US $.

Russia's monetary environment startedshowing promising signs of stabilizing in 1996. During 1995, inflation reached200 percent by December. 1996 is drawing to a close and the inflation rateseems set to fall to 19 percent. The central bank has been pursuing a veryconsistent policy lately, so its goal of maintaining monetary stability lookscredible. Moreover, low inflation is one of the conditions imposed by the IMFin return for its monthly credit and it is therefore hardly in the government'sinterest to start emission based means of financing the budget deficit. Themain risk for inflation could come from a high budget deficit due to low taxrevenues. Financing the deficit has become easier than in the past due to goodinternational credit ratings--for example, IBCA: BB+, Moody's: Ba2.--are makingit cheaper for Russia to borrow on the foreign capital markets.

A key element of Russia's macroeconomic stabilizationprogram has been a tight monetary policy to soak up excess rubles floatingaround the Russian economy and fueling inflation. That policy's success isamong the factors that drove T-bill yields up by 26.6 percent Monday to anannualized 121.4 percent on the secondary market. Just a month ago, yieldsstood at 53.33 percent, according to Skate-to Press Consulting Agency.

The reason for the jump, analysts say, issimple supply and demand — little ruble supply in the market at a time whengovernment spending demands revenue. The banks do not have the money to investin GKO (treasury bills) at 3 percent per month--but they will find the money toinvest for 10 percent per month. Russia's monetary expansion under the IMFagreement is not to exceed 3 percent, compared with 9 percent in December.Combined with promises by Yeltsin to repay wage arrears and ease the impact ofreforms on the social sphere, that tight policy has forced the government toraise yields as a lure to banks to loan the government money.

Intergovernmental Finance

Thedecentralization of the Russian Federation's intergovernmental financialrelationships began with a series of successive tax sharing arrangements alongwith the regions expenditure responsibilities increasing. This sharing andreassignment strategy continued up to and on through the adoption of a newconstitution in December 1993. In Russia, the tax formula sharing rates vary byregion and are often negotiated by each locality with the center. This makesany assessment about the equity impact of transfers or their effects on localrevenue effort difficult. A general disadvantage of tax sharing is that it doeslittle to enhance local accountability or efficiency. Localities receiverevenue regardless of their tax effort and have no discretion to set the taxrate or base. If they view these revenues as costless, their incentive to spendefficiently is lessened. The result may be undue expansion of subnationalspending. In Russia shared taxes are retained by (or accrue to) thejurisdiction in which they are collected. This differs from most marketindustrial and developing economies where shared taxes (like the VAT inGermany) may be shared through a formula based on factors such as population,per capita income, urbanization or other factors. Derivation-based sharing as arule channels resources to high income areas where the tax base and, therefore,revenue collections are largest. It is thus inherently counter-equalizing. Thismay be a problem in countries where regional inequities are serious and wherethe intergovernmental system lacks other instruments (such as transfers) toaddress such imbalances.

The intergovernmental fiscal relations ofthe Russian Federation continues to be highly opaque due to the bargain-basedsystem which presently is being utilized. The bargain-based system is makingaccountability in fiscal policy even worse than is necessary--therefore furtherreducing the transparency. The size and structure of the Russian Federationcontributes to the problems occurring in its fiscal relationships. It is madeup of 89 regions consisting of 29 republics, 50 oblasts, 6 krais, and 10autonomous okrugs, plus 2 metropolitan cities (Moscow and St. Petersburg) whichare referred to as the 89 «subjects of the federation» in theconstitution. The regions are even further subdivided into more than 2000districts, where all the local governments within a region report to theregional governments and are subject to regional regulations, although eachlocal government has independent" (emphasis added) budgetary andadministrative status.

Effects of Decentralization

Economicdecentralization has led to the transfer of a number of services with majorbenefit spillovers (education, health, and social welfare) to the regional andlocal levels. While the administration of these programs by local governmentsmay be appropriate because they are closer to the people, the many small localgovernments that have been created as a result of the strong political push fordecentralization cannot likely provide these services at an adequate level fromtheir own resources. In some regions, enterprises' «public» spendingexceeds budgetary social spending and, in a few «one-company towns»there is no public spending by the budget at all on non-administrativefunctions. Enterprises did not provide these services once privatized, andresponsibility fell onto regional and local governments to finance them. Butlocal governments will need revenue sources to finance the additional burden.

Decentralization, which led to ownershipassignment and financial responsibility, has caused the regions to become moreinvolved in the commercial sector through producer subsidies, capitaltransfers, and privatization. It has also led to the budgetary expenditures bythe regional governments to increase from 13 percent of the GDP in 1992 toaround 18 percent in 1994. Recent policy changes have suggested that this trendof more subnational spending is likely to continue.

The Federal government has approvedlegislation which led to the previously discussed changes in expenditureassignment and also gave local governments the power to formulate budgets andraise revenues without worrying that their surpluses were going to be extractedby the central government. These new assignments of expenditures are notefficient, in part because the federal government has passed down" many ofthe expenditure assignments which were formerly the responsibility of theSoviet state. Revenue autonomy has not been reached partially due to the yearlychanges in tax sharing rates. Disparities between the rich and poor regions hasalso contributed to a problem budgetary concern. Along with these disparities,the high rate of inflation has significantly contributed to revenueunpredictability of the rayons and oblasts. Revenue predictability and thesubnational area's economic state due is of the utmost importance when one isconsidering expenditure assignment of the federation.

Social Welfare and Russia

Thesignificance and necessity of an efficient social safety net in the RussianFederation can only be understood within the context of the Soviet experienceof social security and how today the ideological inclination toward a welfarestate is affecting Russian society. The state's pervasive role in Sovietsociety affected both economic and social conditions. Economically, astate-caused inverse relationship existed between GDP and the state'scommitment to social safety during the Brezhnev regime. Economic and politicalstagnation characterized the latter years of the Brezhnev era. Economically,GNP growth declined precipitously between 1961 and 1985 (see A1 and A2). Priorto 1960, the USSR utilized extensive rather than intensive factors ofproduction--specifically labor, capital (stock), and natural resources. Inessence, Soviet authorities were able to take advantage of Imperial Russia'slack of a strong industrial base by transferring much of the population fromagriculture to industrial production during Stalin rapid industrialization driveof the 1930s and 1940s. The emphasis placed on heavy industry produced acorrespondingly high rate of consumer saving which allowed for increasedcapital growth, that when combined with the natural resource abundance andintensive use of existing capital helped sustain economic growth The USSR'sability to sustain economic growth in the 1970s was fostered by its largereserve of oil that helped finance imports of western technology.

The exhaustion of labor surplus, decliningbirth rates, inefficient use of natural resources and other factors ofproduction, the growing expenditures needed to maintain military parity withthe United States, and the sudden drop in oil prices, and the mis-developmentof the economy all were factors that contributed to the USSR's economicstagnation in the late 1970s and early 1980s. While economic efficiencydecreased during the Brezhnev period, the USSR's leadership demonstratedincreased commitment to the Soviet version of the social safety net. Theparty-state's pervasive role in society had the effect of slowing economicgrowth through poor re-allocation of resources and the social effect ofretarding the development of a civic society. As a result, Soviet societydeveloped an enduring attachment to the idea of an omnipotent state whichprovided for their basic needs regardless of the economic costs.

From a Western perspective, the SovietUnion was ideologically a hyper" welfare state in the sense that prior tothe Gorbachev era, the state attempted to provide a high level of socialsecurity for every citizen, often to the point of harming economic efficiency.Additionally, it heavily restricted the development of private sector in orderto prevent wide wage disparity. As mentioned above, the CPSU's monopoly onpower extended to every aspect of society and in exchange for party dominancethe working population received implicit social guarantees in the form of asocial contract." Linda J. Cook succinctly identifies each sides' basiccommitments and responsibilities:

Basically, the regime provided broadguarantees of full and secure employment, state controlled and heavilysubsidized prices for essential goods, fully socialized human services, andegalitarian wage policies. In exchange for such comprehensive state provision ofeconomic and social security, Soviet workers consented to the party's extensiveand monopolistic power, accepted state domination of the economy, and compiledwith authoritarian political norms. Maintenance of labor peace in thispolitical system thus required relatively little use of overt coercion.

The weakening of the party and otherunintended consequences of glasnost and perestroika such as the emergence ofthe Russian Republic, the decision to release Eastern Europe from Sovietdomination, and the attempt to make state owned enterprises more efficient allhad a direct impact on lowering the standard living for the USSR's population.Gorbachev tried and failed to cut the guarantees of the social contract. Incontrast to earlier in the Soviet period, the perestroika reforms had theeffect of giving significance to money" in the sense that inputs haddeveloped value through the economic decisions which constituted perestroika.From the center's perspective, the problems caused by the inability to cut expendituresthrough revision of the social guarantees were compounded by revenue loss inthree key areas: vodka sales, turnover tax, and republic contribution to thecenter--especially from the Russian Republic.

Gorbachev began perestroika with an attackon worker efficiency. One measure adopted to combat this perceived evil wasrestriction on the sale of alcohol. The consequence was a loss in revenue whichwas further compounded by expenditures related to the Chernoybl disaster andthe massive Armernian earthquake in 1987. In 1990, the center granted stateowned enterprise (SOEs) greater leeway in the setting of prices--between 50percent and 100 percent of state mandated prices. Since retail prices wereunaltered, the state lost a huge amount of revenue from the turnover tax. Inaddition, Russia offered to lower the profit tax for those enterprises willingto pledge" allegiance to the Russian Republic. Finally, the dissolution ofthe Soviet Union was hastened by the rise of Russian nationalism and populism bothof which had economic implications. The Russian Republic provided 80 percent ofthe revenue to the USSR's budget. Yeltsin, using his powerful position withinthe Russian parliament, declared in October of 1989 that the Republic wouldhalt all payment to Union institutions. He followed this devastating maneuverby nationalizing" the USSR Ministry of Finance and seizing its mints. InOctober of that year, Russia seized her share of the USSR'S precious metals.Faced with such tremendous loss of revenue which created a budget deficit thatequaled 10 percent of GNP, the Soviet government elected to increase the amountof money in circulation without a corresponding increase in the production ofconsumer goods and services. The decision to increase money circulation,through wage increases, had a jarring effect on Soviet society. The firstimpact, characterized by the indelible image of long bread lines and thestereotype that a large profit could be made on a pair of Levis familiar tomany Westerner was the result of the disruption of goods and services to thegeneral population.

Price stability began to go by the waysidein the fall of 1988 with an estimated inflation rate of 7 percent whichmushroomed to 10 percent in 1990. As Table A3 and A4 indicate, the stateincreased both the level of wages and subsidies in the other which constitutedthe component parts of the Soviet safety net. Real wages, however did notcompensate for inflation. The decline in social welfare from a monetary anglewas compounded by quality decline in social consumption areas. Although thestate increase subsides to social consumption areas, the collapse of theCouncil on Mutual Economic Assistance (CMEA) which provided much of the USSR'smedicine and medical supplies and a growing environmental movement which forcedthe closure of many chemical plant that supplied the limited domestic market.Gorbachev's attempts at reforms destroyed not only the social contract whichexisted between the state and its citizens but the USSR as well. The lateSoviet period thus provides the starting point for examining poverty and theRussian Federations response to it in the form of the social safety net.

The Soviet social welfare system waseffective in that absolute poverty, i. e. wide spread hunger or inadequatediet, was avoided in the latter years of the Soviet period since the statecould supply the basic needs of the population through its control of USSR'sresources and society as a whole. Research into question of poverty andtherefore poverty alleviation policy (specifically the question of incomeinequality and distribution) was hindered by the imposition of political ratherthan economic explanations. In 1965, the Soviet Labor Research Instituteadopted a social minimum income norm which was derived from the estimated costsof human consumption. Goskomstat revised the income level based on the pricesreported by state-owned stores. The price consumers were faced with, however,due to their shopping habits, the existence of a black market," and inflationarypressures dramatically reduced their purchasing power. The Russian Federationrevised the poverty line in 1992 to encompass the age and gender of individualhouseholds. The six categories are: children under six years of age childrenbetween the ages of 6 and 17, men between the ages of 18 and 59, women betweenthe ages of 18 and 54, men age 60 and above, and women age 55 and older

Closer to the U.S poverty line definition,the Russian poverty level is established by first collecting low-cost cost foodbaskets for each demographic group… [and] after pricing each market foodbasket at national prices, age, and gender-specific multipliers yieldindividual poverty line for each demographic group. The definition of povertyis critically important to social welfare of Russia because, in theory, it setspension, minimum wage level, and welfare payments. The USSR's dissolution hasaltered the scope, source and method of financing of social welfare programs.The Soviet state provided a broad range of social services, through state ownedenterprise. From a public finance perspective, the transition to a more marketoriented system has meant the diversification of social spending responsibilitythrough the creation of off-budgetary funds (OBF) and passing down the bulk ofpublic social spending mandates to sub-national governments. The following arethe major OBFs: Pension Fund, Social Insurance Fund, Employment Fund, and theFund for Social Support.

Created in 1991, the Pension Fund wasdesigned to take pressure of federal budget and is authorized to collect amandatory payment from employers in the form of a mandatory 28 percentcontribution while from agricultural enterprises the mandatory contribution is20. 6 percent and 5 percent of the total income of self-employed individuals.Employees make a 1 percent contribution to the Fund. Labor pensions, financedfrom these contribution, and social pension which are financed from the federalbudget are administered by an independent government agency. The formerconstitute the majority (80 percent) of Russian pensioners and thus the levelof labor pensions affect the lives 19. 5 percent of the Russian population. Tobe eligible for labor pensions, men must have made 25 years worth ofcontributions while women must have made 20 years of contribution. Eligibilityfor labor pensions can be lower depending on occupation--hazardous occupationssuch as coal mining and military service are two examples. Social pensions arefor individual with less than 5 years of work experience and is equaltwo-thirds of the minimum old-age pension or in the case of disability theamount varies but does not exceed the minimum labor pension.

Payroll contributions are the also the mainsource of funding for the Social Insurance Fund (SIF) and the Employment Fund.Created in August 1992, the SIF is funded by a 5.4 percent payroll deductionfrom every worker. The SIF is intended to fund child care, maternal carebenefits, and sick care. Generally, 74 percent of revenue collected from the SIFcontributions remains with the enterprise while the remainder is sent to thecenter to finance federal responsibilities. Workers who have accrued eight ormore years of experience receive their entire salary as do Chernobyl victims,parents with three or more children, and war victims. Workers with less thatfive years experience receive 60 percent of their salaries while those withbetween five and eight years experience receive 80 percent of their salaries.It is accepted practice that benefits are paid until the worker recovers or isgranted a disability pension.

Mothers receive support through a maternitygrant which equals five times the amount of the present minimum wage.Additionally, working mothers receive a maternity allowance, over the span of126 days, which is equivalent to her entire salary. When this time has elapsed,the mother can receive a payments that equals the minimum wage for up to a yearand half.

The expenditure responsibility for familybenefits, which generally are divided into the following broad categories:payment made to all families with children without regard to income orprerequisites, cash transfers to disadvantaged families, and payments made toworking mothers, is unequally shared among all three levels of government.Although the national level contributes, it mandates the levels of benefitswhile often leaving it to the sub-national governments to finance the increase.

Unemployment in the region in a relativelynew phenomena due to the general nature of the Soviet system. The EmploymentFund was created in 1992 to pay unemployment benefits to those affected by thetransition to a market economy. Contribution to the fund comes from a mandatorytwo percent payroll deduction and budget transfers. Revenue collected from thepayroll tax is shared between the raion and oblast governments on a 45 percentto 55 percent ratio. The former then remits 10 percent to the center forfederal responsibilities. Benefits, from Western perspective, are consideredgenerous. Individuals just entering the work force receive the minimum wage.Workers who have been laid of receive in the first three months receive a cashbenefit equal to 75 percent of their previous salary. The benefits level dropsto 60 percent for the following six months and 45 percent for the remainder ofthe year.

The Fund for Social Support ( FFS) is alimited national source for sub-national funding of social programs. In 1992,the FFS accounted for only .01 percent of GDP. The stated purpose of this fundis to aid rayons that have been particularly hard hit in the transition from acommand economy. The FFS began operations in 1992 with revenue from seizedParty assets and tax from re-appraised inventories. It is also supposed toreceive revenue form the privatization process (although it did not receive theten percent assigned in 1992) and «receipts from the revaluation ofcommodities in state stores and ruble receipts from sale of food aid.»

Although inflation increases revenue to theRussian government, it naturally impoverishes the population when adjustmentsare not made (or insufficient to deal adequately with inflation) to monetarybenefits such as the minimum wage and pensions which provides the basis for thesocial safety net. Inflation was one of the primary causes of poverty inRussia. As chart A5 shows, social subsidies and transfers have also beenineffective because they do not reach the truly needy. The primary reason forthis economic waste is the lack of means based testing.

The problem of hyper-inflation which hadplagued Russia earlier in the transition period has been replaced" by thedramatic reduction in real wages and severe dilemma of arrears. By December1995, real wages declined by 13 percent and real consumption declined by 5.3percent. Real wage decline, and unexpectedly low levels of unemployment, can beattributed to evasion of excess wage tax and inside the gate employment"by which enterprise managers hoard labor by paying minimum wage andcompensation workers in non-taxable manners such as payment in kind, lowinterest long-term loans that have questionable repayment terms. It should benoted that the Pension Fund is becoming more experienced in detecting methodsof tax avoidance and recent action has been taken to close loopholes

Reduced inflation has given way to arrearsas one of the primary causes of poverty in the Russian Federation and hasprimarily been the result of international pressure to reduce the budgetdeficit by ending emission based methods of covering the deficit" and taxavoidance and evasion. According to ITAR-TASS, pensioner were owed nearly 3billion dollars in October 1996. Revealing the revenue gap, 22 regions wereable to make pension payments while the remaining 69 needed transfers from thefederal fund. Wage arrears for both private and public sector were estimated at43 trillion rubles--9 billion of which was the state's responsibility.

An area of concern which was not addressedin 1992 and continues to be a problem today is a rapidly deteriorating incomedistribution between the regions of the Russian Federation. The disparitiesbetween the rich and poor regions could possibly be the worst amongst all thefederations.


Oneof the greatest obstacles to successful Russian market economic development isthe absence of a modern and effective tax system and lack of reliable data.Foreign capital always seeks predictability, especially in terms of projectingtax liabilities. Lack of a stable tax regime is the number one reason whyRussia's direct foreign investment dollar level is so low compared with otheremerging markets. A frequent and common concern expressed by foreign companiesis the fear (whether real or perceived) of an unstable, inequitable,unreliable, and unpredictable tax system in Russia. As a result, capital thatcould potentially be invested in Russia is instead invested in other countriesthat are perceived as enjoying more stable tax systems. For Russia, it is timeto introduce tax breaks or other incentives by the end of the year forcompanies using international accounting methods as part of a new businessreform plan. For example, companies which would follow these (internationalaccounting) standards will have their profit tax lowered by, say, fivepercent… or maybe they will receive other privileges. Most Russian companiesuse domestic accounting practices developed to calculate tax levels. Westernaccountants say Russian accounting has limited use for business planning andinvestment. Below, we have stated some suggestion and concerns regarding publicfinance in transitional economies:

Before making any changes in the tax systemthe officials have to think very carefully to avoid unplanned changes. Forinstance, the law on the VAT has been changed 13 times since it was enacted.Proper tax reform would also solve another of Russia's problems--its chronicbudget deficit. The country's inadequate system of tax revenue collection hasbeen unable to keep pace with the rise in government expenditure, leading to abudget deficit of 6.3 per cent of GDP in the first half of this year. Accordingto Mr. Stuart Brown, eastern Europe economist at Paribas Capital Markets, whilefiscal policy has been lax in Russia, monetary policy has had to bear theburden of reducing inflation. The result has been high real interest rates. Nowonder then that several leading companies are looking abroad for capital.Reducing the budget deficit, to reduce «crowding out» at home andallow fiscal policy to take some of the burden in controlling inflation, musttherefore be a priority for the Russian government. The problem is that taxevasion and a culture of non-payment in Russian industry, will hamper effortsto improve revenue collection.

Regulate the movement of budget money byreorganize the Russian treasury and concentrate all budgetary financial flowswithin it.

A good approach to battling non-compliancewould be the implementation of a unified computer information system to controlrevenues and expenditures of the federal budget and state extra-budgetaryfunds, which should contain taxpayers registration system and bring togetherinformation on tax and customs duties payments, banking transactions and cashdisbursements, as well as data on tracing and utilization of the federal budgetresources. But it is still difficult to implement. First, Russia does not havehigh qualified specialists in database and management information systems(MIS). Second, it will require buying expensive mainframe computers what iscritical under collected (60 percent — percent) revenue. It is also importantto decide what kind of tax information is going to be the first to be put inthe database. The State Tax Service of the Russian Federation recently beganthis process by requiring all taxpayers to indicate a personal taxpayeridentification number (PTIN) on payments and settlement documents for taxes andother levies beginning on August 1, 1995. The rule as of January 1, 1996,states that a PTIN should be included on all payment and settlement documents.Also Russia's State Taxation Service is redoubling its efforts to stopcommercial banks from hiding income from tax authorities. The taxation servicerecently found that credit institutions failed to transfer 3 trillion rubles tothe state on time, and that they have used legal means to hide their income.With the centralized computer tax information system, it would be easier toobserve taxpayers and prevent tax evasion.

Reduce the cost of servicing the state debt. Stop the emission of money. Improve control over monopolies. Reorganize the banking system. Set up a federal deposit of insurance bond. Reform ministry of finance and economy. Diversification of the tax base.

Some services should be financed by taxeslevied on local beneficiaries. «Local taxes» are those over whichlocal authorities have some control. Which taxes to assign? The question is noteasy for Russia. In many market economies, the central government controlsthose taxes considered to be most redistributive, such as personal incometaxes, and the cyclical corporate income tax, leaving more stable revenuesources levied on a consumption base or property to the local level. Forexample, some federal systems (the U.S., Switzerland, Canada) allow subnationalcorporate taxes, it would be better for the federal government to set thecorporate income tax. For the transition economies, considerations of bothadministrative complexity and allocative efficiency suggest that subnationallylevied corporate taxes should be avoided at the present time. Permitting themany small subnational governments in the transition economies to set corporatetax rates (or adjust the tax base) will allow substantial tax competition anddifferentiation in enterprise taxation, influencing enterprise locationdecisions in perhaps undesirable directions.

.The development of a more efficient andeffective social safety net in perhaps the most immediate and difficult task toaccomplish in the Russian Federation. Aside from cultural reasons outlinedearlier, economic growth cannot occur without social stability which will nothappen until Russia can design an effective system of coverage. Some possibleways to improve this critical area are: diversify the tax base for socialprograms, redesign the system of federal-sub-national relation which has madethe latter bear an unjust amount of the burden--unfair because of regionaldifferences and compounded by Soviet planning--, and make stronger attempts toreduce arrears which is a difficult task due to the temptation to return toemission-based methods of covering expenditure requirements.



Table A1 Selected Economic Indicators, Average Annual Rate of Growth

1961-70 1971-75 1976-80 1981-85 1986-90 1. Net material product (NMP), Soviet official* 6.4 5.1 3.9 3.1 4.1 2. Gross national product (GNP), CIA estimates* 5.1 3.7 2.1 1.9 C 3. Gross fixed capital investment, Soviet official* 6.9 6.8 3.5 3.5 4.9 4. Industrial output, Soviet official 8.5 7.4 4.4 3.7



5. Industrial output, CIA estimates b. 6.6 5.9 2.4 2.0 C 6. Agricultural output, Soviet official c. C 2.5 1.8 1.0 2.7 7. Agricultural output, CIA estimates b.,c. C 1.4 0.4 (-)0.6 C 8. Real income per capita, Soviet official 6.5 4.3 3.4 2.1 2.7 9. Consumption per capita, CIA estimates b. 3.8 2.9 2.0 1.9 C

SOURCES: Soviet official data and plan goals, TSSU (1986) and earlier volumes in the same series; Pravda, March 9, 1986; June 19, 1986; June 20, 1986; John Pitzer (1982), CIA (1985, pp. 64ff; 1989, pp. 45, 59ff); Gertrude E. Schroeder and M. Elizabeth Denton (1982). For consumption, 1981-1985, and agricultural output, 1976-85, unclassified CIA data supplied to author. Authors' Source: Abrham Bergson Soviet Economic Reform Under Gorbachev" in From Socialism to Market Economy .ed William Kern 1992 p. 37

a. Utilized for consumption and accumulation.
b. Output valued in 1970 prices for growth rates for 1961-75 and in 1982 prices for growth rates for 1976-85.
c. Not available.
d. CIA estimates essentially accord with Soviet official data.
e. Yearly growth rate of average for five-year period over average for previous five-year period.

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Table A2 Comparison of GNP Growth in USSR and Western Countries 1961-85
(Average Annual Growth in Per Cent)

USSR US FRG France Italy UK 1961-65 4.8 4.6 4.8 5.8 5.2 3.2 1966-70 5.1 3.2 4.2 5.4 6.2 2.5 1971-75 3 2.2 2.1 4 2.4 2.2 1976-80 2.3 3.4 3.3 3.3 3.8 1.6 1981-85 1.9 2.4 1.3 1.1 0.9 1.9

Note: US GNP calculated in 1982 prices. GNP growths of FRG, France, Italy and UK are calculated from GDP in 1980 prices.

Source: Cohn (1987, p. 12) Authors' Source: Elliot and Dowla in International Journal of Social Economics" v. 21 p. 78

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Table A3 Soviet state budget expenditures for consumer and food subsidies, social insurance, and health care, 1985-1990

Type of expenditure 1985 1986 1987 1988 1989 1990

In billions of rubles (nominal)
Total state expenditures

386.5 417.1 430.9 459.5 482.6 488.2 Consumer subsidies 58.0 65.6 69.8 89.8 100.7 110.5 Food subsidies 56.0 58.0 64.9 66.0 87.7 95.7 Social insurance and health care 83.6 89.3 94.5 102.5 105.5 117.2

As percent of GNPConsumer subsidies

7.5 8.2 8.5 10.3 10.9 11.6 Social insurance and health care 10.7 11.2 11.5 11.7 11.4 12.3

Source: Anders Aslund, «Gorbachev, Perestroyka, and Economic Crisis,» Problems of Communism, vol. 40, nos. 1-2, Jan.-Apr. 1991, p. 25
a. Estimated figures.
Authors' Source: Linda J. Cook. 1995 The Soviet Social Contract and Why It Failed p. 148

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Table A5 Significance of Public Transfer in Household Income for households Receiving the Benefit

Very Poor Poor Not Poor Transfer % Receiving the benefit Avg % of Recipient Household Income % Receiving the benefit Avg. % of Recipient Household Income % Receiving the benefit Avg. % of Recipient Household Income Family Allowances 288.8 23.6 32.4 14.5 25.7 5.9 Pensions 0.3 75 41 66.9 48.7 58.4 Unemployment Benefit 0.8 21.7 0.4 17.8 0.3 9.8 Subsidies from Local Authorities 100.4 9.6 10.4 9.6 14.5 8.1 Subsidies from Enterprises 55 9.4 8.7 10.8 17.7 11.7 Scholarships 50.2 17.8 6.2 18.2 6.7 8.7 All Transfers* 666.8 58.5 70.9 48.4 74.4 42.6

*All transfers includes those listed (except subsidies from enterprises, which are included with subsidies from local authorities) plus welfare.
Note that the overall average percent of the household income can be calculated form the two values reported for each poverty status.

Source: RLMS. Round 4. October 1993- February 1994.

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A6List of Goods in Everyday Demand and Services to the Population which areExempt from the Sales Tax

Children's food, meat, meat products(except delicatessen products), milk and milk products, margarine, fats, bakeryproducts, flour, pasta products, eggs, tea, sugar, salt, vegetables (cabbage,carrots, beet, onions, potatoes),fish and fish products, vegetable oil, mineralwater, children's items, textbooks for general education schools, specialisteducational and medical equipment and medical supplies;

Children's items, including clothing, footwear,furniture, bed-linen, school uniform, toys and sports items; Consumer goods onlists approved by the councils of ministers of the republics within the USSR,kray soviet executive committees, oblast soviet executive committees, Moscowand Leningrad city soviet executive committees and executive committees ofautonomous oblast and autonomous okrug soviets of people's deputies;

A7 USSR: SALES TAX DECREE Full text of instruction issued by USSR Ministry of Finance anddated February 11, 1991 ). The provisions include some of the following:

1.   Liability extends to joint ventures and Sovietorganizations engaged in importing;

2.   Joint ventures will pay tax on hard currencysales in rubles, converted at the prevailing commercial rate of exchange fixedby USSR Gosbank;

3.   Liability extends over a wide range of supply,including professional, informational, communication, etc. services;

4.   The tax rate is 5%;

5.   Tax exemption applies to sales of preciousmetals, coal shale, export services, trade between parts of a constitutedenterprise.

SOURCE: EKONOMIKA I ZHIZN February 23,199. P19

A8 Taxable income received in calendaryear. Source: Tax 96 TNI 4-1 (Foreign Taxation) (Doc 96-947)
less than 12 million Rubles 12 % from 12 million Rubles 1, 44 million Rubles+to 24 million Rubles 20 % of the sum exceeding 12 million Rubles from 24million Rubles 3.84 million Rubles to 36 million Rbls, 25 percent of the sumexceeding 24 million Rubles above 48 million Rubles 10.44 million Rubles + 35percent of the sum exceeding 48 million Rubles


1.   Isaak I. Dore, 1995 Distribution ofGovernmental Power Under the Constitution of Russia" in Parker SchoolJournal of Eastern European Law" v. 2 p. 675

2.   ibid p. 681

3.   ibid p. 865

4.   ibid p. 691

5.   ibid p. 678

6.   ibid p. 688

7.   With the current political situation we can saythat the budget as a whole, without doubt, will not pass the Duma by the end ofthe year.

8.   The Moscow Times May 21, 1996. p. 54.

9.   World Paper. September, 1996 p. 33

10.   TNI 73-22, 1996

11.   TNI 22/16, 1992, John Turro

12.   Joint Letter No VG-4-12/25N of June 16, 1995

13.   Doc 96-947

14.   Much of the literature on tax assignment argues that the personalincome tax(PIT), generally one of the more important taxes in revenue terms,should be retained by the central government, largely for redistributional andstabilization reasons. Nevertheless, the central government may give localgovernments a share in the PIT.

15.   Tax Analysts, Tax Notes International. January 25, 1993

16.   NOVECONCOMMERSANT. July 28, 1994. p. 2

17.   In Russia, this tax is mostly levied at a national level because ofthe administrative convenience, these taxes have been levied at the producerlevel, not the retail level; and in the transition economy context this oftentranslates into a tax on a few manufacturers as in Russia, for example, there arecigarette factories in only 21 of its 2000 «raions» (ComparativeEconomic Studies Winter 1994, Vol. 36, No. 4), or sometimes on the singlemonopoly producer. Thus, only a few producing districts would benefit fromlevying these taxes and revenues from them would accrue to only a fewlocalities

18.   Tax Analysts, Tax Notes International. January 25, 1993

19.   Tax Analysts, Tax Notes International. January 25, 1993

20.   Tax Analysts, Tax Notes International.January 25, 1993

21.   The British Broadcasting Corporation March 15, 1991

22.   Scot Antel. The Moscow Times. May 21, 1996

23.   Though temporary steps were made like creating special colleges thatare attached to courts of arbitration, we suppose that creating a special taxcourts is essential here

24.   Of course, taxes existed but people could not evade them as theywere centralized and in theory all means of production were owned by the state.

25.   Washington Post. October 12, 1996. p. A25

26.   But we are afraid that this provision will not benefit the economy

27.   Betsy McKay. The Wall Street Journal.October 29, 1996. p. A12

28.   Comment & Analysis; Statistics; Forecast; November 1996 p. 2

29.   Information Services Quest Economics Database Credit SuisseFinancial Forecast, 1996

30.   Reuter Textline Reinsurance, October 31, 1996

31.   In our opinion, inflation will come down further in 1997, toapproximately 15 percent. Also, Russia continues to fail in its economicperformance of it fiscal and monetary policy within the framework establishedby the International Monetary Fund.

32.   The Moscow Times. March 27, 1996

33.   Dmitry Falcovich, head of the macroeconomic department withAlliance-Menatep

34.   Russian Federation: Toward Medium-Term Viability. 1996. IBRD/WorldBank p.39

35.   Fiscal Management in Russia. 1996. IBRD p. 39

36.   Fiscal Management in Russia. p. 22

37.   John E. Elliot and A.F. Dowla. Gorbachev, Perestroika andDemocratizing Socialism" in International Journal of SocialEconomics" v. 21 p. 78

38.   Linda J. Cook. 1995 The Soviet Social Contract and Why ItFailed." Harvard University Press: Cambridge p.2 Cook suggests the followingas empirical evidence: 1. That the Soviet regime consistently deliver toworkers economic security and social welfare; 2. That the regime deliver thesepolicy goods because it is constrained by it perception of workers'expectations or its fear of labor discontent if it fails to deliver them; [and]3. that workers give in exchange political compliance and quiescence. p. 5

39.   Vladmir Mau. 1996 The Political History of Economic Reform inRussia, 1985-1994. Center for Research into Communist Economies p. 59

40.   John Dunlop. 1993. The Rise of Russia and the Collapse of the SovietEmpire. Princeton University Press: Princeton. p. 267

41.   Cook p.141

42.   ibid p.187

43.   Thomas A. Mroz and Barry M. Popkin. 1995. Poverty and EconomicTransition in the Russian Federation" in Economic Development and CulturalChange. V 44 p.3

44.   ibid p.4

45.   ibid p. 4

46.   Russia: Social Protection During Transition and Beyond InternationalBank For Reconstruction and Development Report No. 11748-RU. p. 23

47.   Vladimir Mikhalev Social Security in Russia under EconomicTransformation" in Europe-Asia Studies v. 48 n.1 (note: As this sourcecame from an electronic medium, I have omitted page numbers--DL)

48.   ibid

49.   IBRD Report No. 11748-Ru. p. 35

50.   ibid p. 11

51.   EBRD p. 40

52.   ibid

53.   BISNIS Country Report

54.   OMRI November 31, 1996

55.   OMRI October 4, 1996

56.   Financial Times. September 23, 1996

57.   Of course, it is possible to lower administrative costs and improveoverall efficiency in the tax system by going to a more computerized system butresistance to change due to unquestionable job loss is quite evident in theRussian government.

58.   Komsomol'skaya Pravda. Sept. 24, 1996


The file was preapred by DmitriMaslitchenko dmitri@mailroom.com

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