Home  Journals  Finance and Credit  25(649) - 2015 July

Developing the tax potential calculation formulae in intergovernmental fiscal relations of the Republic of Bashkortostan and municipalities

Vol. 21, Iss. 25, JULY 2015

Article PDF Version

Received: 6 March 2015

Accepted: 19 March 2015

Available online: 12 July 2015

Subject Heading: FISCAL SYSTEM

JEL Classification: 

Pages: 55-63

Subject The study deals with mathematical formulae of tax potential calculation designed for municipalities of the Republic of Bashkortostan, which are used to allocate equalization grants from the regional budget to local budgets. The relevance of the study is supported by the fact that these formulae and the concept of tax potential were introduced to create incentives for local governments to develop local economy. However, while using, these formulae underwent many transformations. In addition, the academic literature has some criticism of the approach and the designed formulae.
     Objectives The objective of the study is to identify whether the formulae are useful in creating efficient budget incentives for economic development at the local level.
     Methods Major methods of the study include the comparison of the formulae with the classical definition of tax potential, and their analysis from the perspective of criticism encountered in academic literature.
     Results We have developed recommendations on the new design of the formulae. It is reasonable to use the recommendations when calculating the tax potential of local municipalities.
     Conclusions and Relevance We conclude that the formulae that are currently used in the Republic of Bashkortostan correspond to the classical definition of tax potential. However, their design and the symbols are obscure for understanding their economic substance by local governments. It is crucial to have a clear comprehension to create effective budget incentives for economic advance.

Keywords: tax potential, fiscal capacity, budget system, economic growth, tax base

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