https://orcid.org/0000-0002-2496-5988
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ABSTRACT
This article addresses the economic and fiscal consequences of Russia’s full-scale invasion of Ukraine for subnational governments in Russia. Using annual fiscal and economic data, we study how different groups of regions have been affected by the ongoing Russo-Ukrainian war. Despite the Russian economy being more resilient to a sanctions shock than initially predicted, we document several important negative tendencies at the regional level, sometimes overlooked in policy discussions and the literature on economic sanctions. In this article, we present new regional data and focus on the effects of the war on overall regional tax collections in 2022–2023, as well as the dynamics of different types of regional and federal taxes. We identify several groups of “winners” (oil- and gas-extracting regions, weapons-producing regions, and the largest city-regions) and “losers” (regions that share a border with Ukraine and regions with sanctions-prone industrial specializations) and discuss the prospects of their resilience.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
2. According to the most recent data from the IMF (https://www.imf.org/en/Publications/WEO/weo-database/2023/October), Russia’s GDP is five times larger than Iran’s and 20 times larger than Venezuela’s, the other two heavily sanctioned countries by the international community (data for North Korea are not available).
3. There are also several recent studies on the broader effects of the Russo-Ukrainian war on global markets, energy prices, and international financial stability (Fabbrini Citation2023; Ferriani and Gazzani Citation2023; Tong Citation2024). The review of these studies is beyond the scope of this article.
4. Trends in tax collections, particularly collections of corporate income taxes, are closely connected to general economic trends and, given the tax rules in Russia, regional corporate income tax collections also typically reflect the volume of economic activity in the regions where the collections occur.
6. There is by now a substantial literature that attempts to estimate the effect of post-2014 and more recent sanctions on the Russian economy (see a recent review by Simola Citation2023). The estimates of these effects vary widely, but the impact of post-2014 sanctions was clearly relatively small, with estimates in the range of 1–5% of GDP in the medium term. The recent sanctions apparently produced a more substantial result in 2022, but trade diversion and evasion efforts appear to have reduced the impact of sanctions in 2023. Nonetheless, the long-term effect of the current system of sanctions is likely to be quite significant. It should also be noted that sanctions that are not supported by all major economies do not typically produce large GDP declines in the short- to medium term.
8. Even as late as October 2022, the World Bank was projecting Russia’s GDP to decline by 4.5% in that year, admitting that this was “lower than initially expected”
9. See some early predictions regarding the consequences of war for Russia in Stoner (Citation2022).
16. This section of the paper is based mainly on a descriptive review by Zubarevich (Citation2023) and on https://www.garant.ru/products/ipo/prime/doc/407617736/.
17. Data from the Russian Statistical Service (Rosstat) are available at https://rosstat.gov.ru/statistics/price. We use the official CPI and acknowledge some of the limitations of this approach in the long run (for instance, due to the changing structure of the economy or if Rosstat manipulates its data), but we assume here that it does not make a meaningful difference in the short run.
18. Corporate income tax collections are shared between the federal and regional budgets. The general tax rate is 20%, of which 3% points typically go to the federal budget and up to 17% points is a standard regional rate (that can be reduced in certain cases by regional governments).
19. The tax rate of 34% applies to all exporters of liquified natural gas except Gazprom and its subsidiaries, which were explicitly excluded from the tax base in early 2023. For details, see: https://www.kommersant.ru/doc/5838550.
20. The box and whisker plot in shows the interquartile range (the “box”), the average (the “cross”), and the median (the horizontal line in the middle of the box) values, as well as other parameters of the distribution.
21. This reflects the fact that military personnel, soldiers, and officers, unless they have a tax-exempt status, typically pay income taxes in the regions where they are stationed (article 226 of the Tax Code of Russia), and these regions, being close to the frontline, house major bases of the Russian Armed Forces (e.g. the headquarters of the Southern Military District is located in the Rostov region).
22. We excluded from our regressions the two border regions (Belgorod and Kursk) that suffered the greatest declines in tax collections that were independent of their industrial structure.