Home  Journals  Finance and Credit  5(677) - 2016 February

Analyzing the influence of tax and pension reforms on the choice of informal employment in Russia

Vol. 22, Iss. 5, FEBRUARY 2016

Article PDF Version

Received: 12 October 2015

Accepted: 21 October 2015

Available online: 12 February 2016

Subject Heading: FISCAL SYSTEM

JEL Classification: G18, J46

Pages: 36-50

Importance Informal employment is a complex economic phenomenon that goes beyond direct government control and, therefore, requires multifaceted consideration. Over 2001–2002, Russia had extensive reforms of tax and pension systems; the reform results might influence the probability of choosing the informal sector by individuals.
     Objectives The study aims to analyze Russian reforms and their effect on informal employment.
     Methods We assess the empirical model on the basis of the Russian Longitudinal Monitoring Survey of Higher School of Economics data from 1998 to 2009. To reveal the effect, we apply the difference-in-difference econometric approach.
     Results The findings show that the Personal Income Tax reform resulted in a 2.5% decrease in the number of people involved in informal employment. Other reforms had no impact on the incentives to work informally. An important feature of the reforms is that they do not influence each other; the synergetic effect is zero.
     Conclusions We assume that these results are conditioned by subsequent frequent changes in the implemented pension reform and the reform of insurance contributions, which caused uncertainty about the future, thus impeding the decision to change the informal status by individuals. The paper extends the knowledge about the informal economy and assesses the efficiency of Russian reforms in terms of informal employment. The findings may be useful for conducting further government policy aimed at reducing informal employment among Russian citizens.

Keywords: reform, tax system, pension system, informal employment

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