GOVERNMENT BUDGET REVENUES IN AZERBAIJAN: THE TAX BURDEN AND THE ROLE OF THE OIL FACTOR
Keywords:
government budget, tax burden, oil factor, scenario analysis.Abstract
This article examines the two main sources of the state budget in Azerbaijan: taxes and oil revenues. In particular, it analyzes variously measured indicators of the tax burden on the Azerbaijan economy compared to other countries in the region and the world, assesses, based on a regression model, the role of the oil factor in generating revenue for the budget, and explores various scenarios for evaluating the sustainability of government budget revenues in the medium term.
Based on his assessments, the author shows that steady growth of the non-oil sector by 7%-9% per year is a major condition for maintaining the stability of government revenues in the medium term.
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References
See: International Monetary Fund Fiscal Policy and Income Inequality, IMF Policy Paper, 23 January, 2014, available at [http://www.imf.org/external/np/pp/eng/2014/012314.pdf].
See: J. Stiglitz, Economics of the Public Sector, 3rd ed., W.W. Norton & Company, New York, 2000.
See: A.J. Auerbach, The Effectiveness of Fiscal Policy as Stabilization Policy, July 2005, available at [http://eml.
erkeley.edu/~auerbach/effective.pdf].
See: A. Spilimbergo, St. Symansky, O. Blanchard, C. Cottarelli, Fiscal Policy for the Crisis, IMF Staff Position Note,SPN 08/01, 29 December, 2008 [https://www.imf.org/external/pubs/ft/spn/2008/spn0801.pdf].
See: W. Easterly, S. Rebelo, Fiscal Policy and Economic Growth: An Empirical Investigation, NBER Working Paper Series, Working Paper No. 4499, October 1993, available at [http://www.nber.org/papers/w4499.pdf].
See: Law of the Azerbaijan Republic on the State Budget of the Azerbaijan Republic, available at [http://e-qanun.az/
les/framework/data/4/f_4756.htm] (in Azeri).
See: PwC and World Bank/IFC Paying Taxes 2014: The Global Picture, pp. 139-145, available at [http://www.
oingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Special-Reports/Paying-Taxes-2014.pdf].
Since data were available for only 13 countries, calculations were made only for these countries.
The difference between the tax burden in Azerbaijan calculated at the beginning of this section (11.4% in 2012) and the figure given above (13%) is due to the fact that the World Bank takes into account not only tax revenues as a percentage of GDP, but also the entire range of state duties and other mandatory payments.
See: PwC and World Bank/IFC Paying Taxes 2014: The Global Picture, p. 140.
For more details see: A.B. Laffer, “The Laffer Curve: Past, Present and Future,” Heritage Foundation, No. 1765,1 June, 2004 (see also: Iu. Ananiashvili, V. Papava, Nalogi i makroekonomicheskoe ravnovesie: Laffera-Keinsianskiy sintez,CA&CC Press®, Stockholm, 2010).
See: Decrees of the President of the Republic of Azerbaijan on the Application of the Law of the Azerbaijan Republic on the State Budget of the Azerbaijan Republic for 2011, 2012, and 2013.
See: D.N. Gujarati, Basic Econometrics, Fourth edition, McGraw-Hill, 2004, p. 970.
See: J.G. MacKinnon, Critical Values for Cointegration Tests, Queen’s Economics Department, Working Paper No. 1227, p. 2.
Real growth rates in the non-oil sector are approximated to the annual average growth rates for the non-oil sector set as goals in the Development Concept “Azerbaijan 2020: Outlook for the Future” (See: Development Concept “Azerbaijan 2020: Outlook for the future,” p. 11, available at [http://www.president.az/files/future_az.pdf] (in Azeri).
The Paying Taxes 2014 report compares tax systems in 189 economies worldwide, but since data for an alternative indicator of the tax burden—tax revenues as a percentage of GDP—were available for only 131 countries, in order to verify the results we analyzed only this group of countries.
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