Journal of Tax Reform
Asymmetry Effect of Tax and Public Debt on Private Consumption Spending in Russia
Dhyani Mehta 1, Valentina V. Derbeneva 2
1 Pandit Deendayal Energy University, Gandhinagar, India
2 Ural Federal University named the first President of Russia B.N. Yeltsin, Yekaterinburg, Russian Federation
Abstract
According to the Ricardian Equivalence theory, private consumption spending is unaffected by the debt vs tax mode of deficit financing. The study re-examines the “Ricardian Equivalence” hypothesis in Russia by using private consumption spending as the dependent variable and government expenditure, government borrowing, tax, and income as the independent variables. The Ricardian position offers an intriguing issue in the Russian setting. If the Russian economy exhibits Ricardian equivalence, the private sector will shift its spending habits and boost its savings, rendering the policy reforms ineffectual. The ARDL and NARDL models used yearly time series data between 1988 and 2022. The results refute the Ricardian Equivalence and support the Keynesian perspective that financing the fiscal deficit (debt vs tax) does affect private consumption spending. The estimates support a strong long-run and short-run link between the variables. Estimates confirm that tax and borrowing mode of deficit financing negatively influences Russia’s consumption spending. It shows that short-run disequilibrium converges to long-run equilibrium in the ARDL model at a rate of 85.3% and in the NARDL model at a rate of 28.6%. The study concludes that the deficit financing strategy should be carefully devised and supported. Implementing an expansionary fiscal policy will influence the overall private demand of Russia. A tendency to rely too much on tax and borrowings as a financing technique negatively influences private consumption spending. This study contributes to the pool of literature on “Ricardian Equivalence” and deficit financing by providing new data on how to formulate fiscal policies that are efficient at financing deficits and sustainable by making prudent expenditures without endangering the nation’s private consumption.
Keywords
ARDL, NARDL, consumption spending, deficit financing, Ricardian equivalence, government borrowing, fiscal policy, fiscal deficit, Russia
JEL classification
H3, H5, H6, H62, F31, F63References
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About Authors
Dhyani Mehta – Ph.D. Economics, Assistant Professor, School of Liberal Studies, Pandit Deendayal Energy University, Gandhinagar, India (Knowledge Corridor, Raisan Village, PDPU Rd, Gandhinagar, Gujarat 382007, India); ORCID: https://orcid.org/0000-0002-6783-0506; e-mail: dhyani.mehta@sls.pdpu.ac.in
Valentina V. Derbeneva – Cand. Sci. (Econ.), Associate Professor, Department for Theory, Methodology and Law Support of State and Municipal Administration, Ural Federal University named the first President of Russia B.N. Yeltsin, Yekaterinburg, Russia (19 Mira St., 620002, Yekaterinburg, Russian Federation); ORCID: https://orcid.org/0000-0002-3102-6567; e-mail: v.v.derbeneva@urfu.ru
For citation
Mehta D., Derbeneva V.V. Asymmetry Effect of Tax and Public Debt on Private Consumption Spending in Russia. Journal of Tax Reform. 2023;9(3):359–375. https://doi.org/10.15826/jtr.2023.9.3.147
Article info
Received August 6, 2023; Revised August 24, 2023; Accepted September 8, 2023
DOI: https://doi.org/10.15826/jtr.2023.9.3.147
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