Tax Incentives for Economic Growth in the Russian Far East: Broad vs. Targeted Stimuli

Olga Sinenko

Abstract


The purpose of this study is to justify the choice of tax incentive policy instruments aimed at the economic development of the Russian Far East, which is facing acute demographic and environmental problems. To model the dynamics of the region’s real economic system, this study employed a mathematical model based on actual data from 2010 to 2021, covering economic, technological, and socio-ecological aspects. Using the versatile AnyLogic 8.0 platform for agent-based and system dynamics modeling, experiments on alternative tax incentive policy options involving both broad tax incentives and targeted economic development measures were conducted. Specifically, a 50% investment tax deduction for residents in special economic zones in the Russian Far East was implemented. The experimental results show that, despite comparable population dynamics, targeted stimulation of growth poles through public-private partnership programs outperforms broad tax incentives for economic entities in the Russian Far East. This is evident in higher economic growth rates in the region, particularly during the experimental period, except for 2040–2050, where adverse demographic trends constrain growth in both scenarios. The theoretical significance of the application of this method has shown that it allows us to obtain new significant results in the subject area of research due to the consideration of the complex interaction of factors of influence both at the micro- and macro-level, primarily behavioral factors that are fundamentally important for understanding the action of taxes. The practical implications of this study lie in defining the parameters of tax policy to target and stimulate growth poles in regions serving as hubs for generating and disseminating new technologies. The planned perspective is to encourage population growth and ensure sustained economic development in Russia’s Far East. It is advisable to explore comprehensive tax and budgetary regulations that simultaneously address economic, socio-demographic, and environmental issues in the region.

 

Doi: 10.28991/ESJ-2024-08-03-021

Full Text: PDF


Keywords


Sustainable Regional Development; Far East; Tax Policy; Tax Incentives; Economic-Mathematical Model; System Dynamics; Agent-Based Modeling.

References


Wade, K. (2023). The Return of "Fiscal Activism". Schroder Investment Management Limited, London, United Kingdom. Available online: https://www.schroders.com/en-us/us/intermediary/insights/regime-shift-the-return-of-fiscal-activism/ (accessed on March 2024).

Hanappi, T., Millot, V., & Turban, S. (2023). How does corporate taxation affect business investment? Evidence from aggregate and firm-level data. OECD Economics Department Working Papers, Organization for Economic Co-operation and Development (OECD), Paris, France. doi:10.1787/04e682d7-en.

Meng, G., & Zeng, D. Z. (2019). Structural transformation through free trade zones: the case of Shanghai. Transnational Corporations, 26(2), 95–115. doi:10.18356/70a11ff7-en.

Song, C., Liu, Z., Yuan, M., & Zhao, C. (2024). From text to effectiveness: Quantifying green industrial policies in China. Journal of Cleaner Production, 446, 141445. doi:10.1016/j.jclepro.2024.141445.

Gurova, T., & Skorobogaty, P. (2023). And then - struggle and economic growth. Expert 9, 13–19. (In Russian).

Tanzi, V., & Zee, H. H. (2000). Tax policy for emerging markets: developing countries. National tax journal, 53(2), 299-322. doi:10.5089/9781451845341.001.

Giroud, X., & Rauh, J. (2019). State taxation and the reallocation of business activity: Evidence from establishment-level data. Journal of Political Economy, 127(3), 1262–1316. doi:10.1086/701357.

Walczak, J., Yushkov, A., & Loughead, K. (2023). 2024 State Business Tax Climate Index. Tax Foundation, Washington, United States. Available Online: https://taxfoundation.org/research/all/state/2024-state-business-tax-climate-index/ (accessed on May 2024).

Zhao, L., Chong, K. M., Gooi, L. M., & Yan, L. (2024). Research on the impact of government fiscal subsidies and tax incentive mechanism on the output of green patents in enterprises. Finance Research Letters, 61, 104997. doi:10.1016/j.frl.2024.104997.

Zeng, D. Z. (2016). Special economic zones: Lessons from the global experience. PEDL Synthesis Paper Series, 1(1), 1–9.

Hasan, R., Jiang, Y., & Rafols, R. M. (2021). Place-based preferential tax policy and industrial development: Evidence from India’s program on industrially backward districts. Journal of Development Economics, 150, 102621. doi:10.1016/j.jdeveco.2020.102621.

Alder, S., Shao, L., & Zilibotti, F. (2016). Economic reforms and industrial policy in a panel of Chinese cities. Journal of Economic Growth, 21(4), 305–349. doi:10.1007/s10887-016-9131-x.

Lu, Y., Wang, J., & Zhu, L. (2019). Place- based policies, creation, and agglomeration economies: Evidence from China’s economic zone program. American Economic Journal: Economic Policy, 11(3), 325–360. doi:10.1257/pol.20160272.

Li, X., Wu, X., & Tan, Y. (2021). Impact of special economic zones on firm performance. Research in International Business and Finance, 58, 101463. doi:10.1016/j.ribaf.2021.101463.

Wang, G., Hou, Y., Du, S., & Shen, C. (2023). Do pilot free trade zones promote green innovation efficiency in enterprises? —Evidence from listed companies in China. Heliyon, 9(10), 21079. doi:10.1016/j.heliyon.2023.e21079.

Yan, X., He, T., Qian, P., & Liu, Z. (2024). Does the construction of Pilot Free Trade Zones promote the development of green economy? A quasi-natural experiment evidence from China. Economic Analysis and Policy, 81, 208–224. doi:10.1016/j.eap.2023.11.032.

Xi, Q., Sun, R., & Mei, L. (2021). The impact of special economic zones on producer services productivity: Evidence from China. China Economic Review, 65, 101558. doi:10.1016/j.chieco.2020.101558.

Augustyński, I. (2019). The illusions of special economic zones in developed countries. Biblioteka Regionalisty, 19(19), 7–19. doi:10.15611/br.2019.1.01.

Nel, E. L., & Rogerson, C. M. (2013). Special Economic Zones in South Africa: Reflections from International Debates. Urban Forum, 24(2), 205–217. doi:10.1007/s12132-012-9184-7.

Rothenberg, A. D., & Temenggung, D. (2019). Place-Based Policies in Indonesia: A Critical Review. World Bank, Washington, United States. doi:10.1596/32593.

Alonso-Betanzos, A., Sánchez-Maroño, N., Fontenla-Romero, O., Polhill, J. G., Craig, T., Bajo, J., & Corchado, J. M. (2017). Agent-based modeling of sustainable behaviors. Springer, Cham, Switzerland. doi:10.1007/978-3-319-46331-5.

Li, S., Jia, N., Chen, Z., Du, H., Zhang, Z., & Bian, B. (2022). Multi-objective optimization of environmental tax for mitigating air pollution and greenhouse gas. Journal of Management Science and Engineering, 7(3), 473–488. doi:10.1016/j.jmse.2022.02.001.

Mathieu-Bolh, N. (2017). Can tax reforms help achieve sustainable development? Resource and Energy Economics, 50, 135–163. doi:10.1016/j.reseneeco.2017.06.004.

Mattauch, L., Klenert, D., Stiglitz, J. E., & Edenhofer, O. (2022). Overcoming wealth inequality by capital taxes that finance public investment. Structural Change and Economic Dynamics, 63, 383–395. doi:10.1016/j.strueco.2022.05.009.

Samara, E., Georgiadis, P., & Bakouros, I. (2012). The impact of innovation policies on the performance of national innovation systems: A system dynamics analysis. Technovation, 32(11), 624–638. doi:10.1016/j.technovation.2012.06.002.

Guo, L. ling, Qu, Y., Wu, C. you, & Wang, X. ling. (2018). Identifying a pathway towards green growth of Chinese industrial regions based on a system dynamics approach. Resources, Conservation and Recycling, 128, 143–154. doi:10.1016/j.resconrec.2016.09.035.

Zhou, X., Xu, Z., & Xi, Y. (2020). Energy conservation and emission reduction (ECER): System construction and policy combination simulation. Journal of Cleaner Production, 267, 121969. doi:10.1016/j.jclepro.2020.121969.

Meng, X., & Yu, Y. (2023). Can renewable energy portfolio standards and carbon tax policies promote carbon emission reduction in China’s power industry? Energy Policy, 174, 113461. doi:10.1016/j.enpol.2023.113461.

Vasiljeva, M. V. (2013). Directions for Improving Cluster Policy. Issues of Modern Economics, 4. doi:10.24194/41311. (In Russian).

Zulkepli, J., & Eldabi, T. (2015). Towards a framework for conceptual model hybridization in healthcare. 2015 Winter Simulation Conference (WSC), 6-9 December, 2015, California, United States. doi:10.1109/wsc.2015.7408280.

Vasiljeva, M. V. (2013). Innovation Policy for Nanotechnology Development. Issues of Modern Economics, 1. doi:10.24194/11318. (In Russian).

Jo, H., Lee, H., Suh, Y., Kim, J., & Park, Y. (2015). A dynamic feasibility analysis of public investment projects: An integrated approach using system dynamics and agent-based modeling. International Journal of Project Management, 33(8), 1863–1876. doi:10.1016/j.ijproman.2015.07.002.

Yazgın, D. Ö. (2024). a Sociopolitical Assessment of Technology Development in Istanbul, Turkey. Istanbul Journal of Social Sciences and Humanities, 1(1), 40–58. doi:10.62185/issn.3023-5448.1.1.4.

Vishnevsky, V. P., & Polovyan, A. V. (2016). Fiscal or monetary stimulus? Evolutionary arguments for tax reforms. Journal of Tax Reform, 2(3), 208–226. doi:10.15826/jtr.2016.2.3.025.

Demartini, M., Bertani, F., & Tonelli, F. (2019). AB-SD Hybrid Modelling Approach: A Framework for Evaluating Industrial Sustainability Scenarios. Service Orientation in Holonic and Multi-Agent Manufacturing, SOHOMA 2018, Studies in Computational Intelligence, vol 803, Springer, Cham, Switzerland. doi:10.1007/978-3-030-03003-2_17.

Sinenko, O. (2023). Modeling Tax Incentives for Sustainable Development of Territories. Bulletin of Baikal State University, 33(3), 466–474. (In Russian).

Polovyan, A. V., & Vishnevskaya, E. N. (2017). Regulation of coevolution of economic and ecological populations in the context of sustainable development. Economics and Mathematical Methods, 53(2), 101-117. (In Russian).

Minakir, P. A., & Naiden, S. N. (2021). Social Dynamics in the Russian Far East: Failure of the Institutional Paradigm. Regional Research of Russia, 11(2), 139–150. doi:10.1134/S2079970521020118.

Gritsko, M. (2023). Demographic Dynamics in the Far Eastern Subjects of the Russian Federation in 2013–2022. Regionalistica, 10(4), 7–28. doi:10.14530/reg.2023.4.7.

Nelson, R., & Winter, S. (1982). An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, United States.

AnyLogic. (2023). AnyLogic: Simulation modeling for business. AnyLogic, Moscow, Russia, Available online: https://www.anylogic.ru/ (accessed on May 2024) (In Russian).

Murphy, L.M. & Edwards, P.L. (2003). Bridging the Valley of Death: Transitioning from Public to Private Sector Financing. National Renewable Energy Laboratory, Colorado, United States.

Simagin, Y. (2021). Results of the study of demographic problems in Russia in the 21st century. Population, 24(4), 4–22. doi:10.19181/population.2021.24.4.1.

Gasmi, F., Recuero Virto, L., & Couvet, D. (2023). An empirical analysis of economic growth in countries exposed to coastal risks: Implications for their ecosystems. Economic Systems, 47(4), 101130. doi:10.1016/j.ecosys.2023.101130.

Yuan, L., Li, R., Wu, X., He, W., Kong, Y., Ramsey, T. S., & Degefu, D. M. (2023). Decoupling of economic growth and resources-environmental pressure in the Yangtze River Economic Belt, China. Ecological Indicators, 153, 110399. doi:10.1016/j.ecolind.2023.110399.

Zhang, J., Qi, Y., Song, Y., Li, Y., Lin, R., Su, X., & Zhu, D. (2023). The relationship between industrial transfer parks and county economic growth: Evidence from Guangdong Province, China. Habitat International, 139, 102894. doi:10.1016/j.habitatint.2023.102894.

Ministry of Economic Development of the Russian Federation. (2023). The government supported the proposition to change the mechanism of the investment tax deduction. Ministry of Economic Development of the Russian Federation, Moscow, Russia. Available online: https://www.economy.gov.ru/material/news/pravitelstvo_podderzhalo_izmenenie_mehanizma_ investicionnogo_nalogovogo_vycheta.html (accessed on May 2024). (In Russian).

Borkova, E. A., & Trunin, V. I. (2023). Development of the mechanism of public-private partnership in the innovative sphere. Journal of St. Petersburg State University of Economics, 1(139), 75–80. (In Russian).

Pashin, S. (2019). We have many things that look real, only they don’t work. Zakon, 4, 7–21. (In Russian).

Lee, H.-H., & Shin, K. (2019). Nonlinear effects of population aging on economic growth. Japan and the World Economy, 51, 100963. doi:10.1016/j.japwor.2019.100963.


Full Text: PDF

DOI: 10.28991/ESJ-2024-08-03-021

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Olga Sinenko