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Problem outline

The continuous economic growth of a market economy originates in the extended balance of supply and demand on a national market. The overall taxation rate is the key external condition, which determines the actual market balance both in kind and value. Exorbitant taxation narrows the domain of market stability, leads to inflation and production decline. In this way the present taxation policy inflicts the future development of the Russian economy.

In the present paper we consider the real balance of the national reproduction related with the actual taxation rate and the emerging structure of prices. Such an analysis allows us to calculate the maximum taxation rate at which the stable reproduction of GDP and the growth of budget revenues are possible.

Review of the field

Intersectoral balance sheet displays in a concise form the diverse links between the various sectors of a national economy. Numerous modifications of it are widely used in economic analysis (see, e.g., [1], [2], [5]).

Corporate management is mostly concerned with a current trade balance, which displays the real commodity exchange of the industries or enterprises (e.g., [1]). The characteristic principle of subdivision of the industries in that balance is the aggregate representation of the production means and consumer goods within the net sales of each industrial branch.

To overcome this inconvenience scientific use brings forward the so-called balance of pure industries to replace the real trade balance. Within this refined balance each sector of a national economy is represented through the output of its single characteristic product. This monoproduct is then used both as the production means and for final nonproductive consumption. Probably, the most typical example for this kind of balance is the Input-Output model by Leontieff [2].

Nonetheless, such a refined balance may too be insufficient. In fact, it only reveals the transfer of goods between the industries and the individual consumers, while making no difference between the capital and the surplus value, letting alone the difference between the fixed and variable capital as well as the profit rate (see [3]). But just the latter aggregates give the opportunity to consider the impact of taxation policy on the whole process of the national reproduction.

For this reason many economists (see, e.g., [5, 6]) transform the static balance of pure industries or its linear dynamic generalization (e.g., [4]) into the model of balanced reproduction with the explicitly defined industry which manufactures the goods for the final nonproductive consumption. The present paper is intended to outline such a model.

Method

The suggested model of the national reproduction that is going to be used in the present project proceeds from the intersectoral balance sheet of the special form in which the final nonproductive consumption is represented as a separate industry. This kind of balance sheet was considered, e.g., by Dadayan [5]. It enables us to separate the elements of the fixed and variable capital from the aggregate structure of the national economy. It is possible then to calculate the individual rate of surplus value in each production sector as well as estimate the characteristic time of the capital turnover.

To illustrate the suggested balance sheet we provide the sample balance of two aggregate sectors of a national economy. The first line of the balance shows the distribution and substantial structure of the means of production, while the second line displays the final nonproductive consumption. In fact, the first sector of the national economy shown in the balance can be extended, if necessary, up to the real diversity of goods on the national market. On the other hand, the aggregate form of the second sector is the characteristic feature of the balance and cannot be divided into separate products.

The intersectoral balance in the production and distribution of GDP is being achieved through the dynamic equilibrium of supply and demand on the national market. It thus defines a number of equations, which restrict the domain of extended reproduction of the national economy. The overall rate of taxation is the external parameter of these equations, since the budget revenues supplied by the federal taxes are explicitly shown in the balance.

To illustrate this fact we consider the way in which the profit of each industrial sector is finally used. It enables us to calculate the domain in which the value of the investment rate divided by the total profit can lie. The restrictions upon the domain imply that the nonproductive consumption of the profit in any case cannot be negative. The available domain appears to be even narrower, if we take into account that the total input value of any product cannot exceed the overall output of the product in the economy. All these conditions lead to a number of linear inequalities that define the domain of balanced development of the economy. The boundaries of the domain depend on the overall taxation rate, so that the increase in levies squeezes the domain. The general structure of the domain can be estimated by using the linear programming algorithms. In the simplest case of two industrial sectors the domain can be explicitly drawn The upper boundary is defined by the condition of zero nonproductive consumption in each sector. The right boundary corresponds to the maximum level of investments.

The advantage of the suggested approach proceeds from the direct use of the regular data of the standard intersectoral balance within the concise model of reproduction and accumulation of capital.

Analysis

We have tested the above model in order to interpret the real data, which describe the development of the Russian economy in the past few years. The authors dispose the diverse database what contains monthly indices of the Russian industries spanning from 1992 through 1999.

These data enable us to draw the yearly-renewed sequence of intersectoral balances of the Russian economy. In this way we calculate the critical rates of taxation and the inflation potentials which are typical of the Russian economy in recent years. Then we estimate the optimal taxation rate and the effective investment strategy for the Russian industries.

In addition, we consider the impact of domestic prices on the market balance in the national economy. It allows us to estimate the taxes, necessary subsidies and financial support to enterprises, which lead to optimal prices and extend the taxation base.

On the other hand, the analysis of the real trade balance on the Russian market allows us to estimate the existence and the boundaries of the domain, which determines the stable growth of the economy accompanied with the increasing index of the production rate. When these conditions hold, the inflow of the budget revenues becomes stable. Actually speaking, the path of economic development in this case locates between the two trajectories, namely the trajectory of consumption and the trajectory of accumulation. The taxation policy may force the real trajectory tend one of these limit curves.

1. K.Waltuch The usage of the intersectoral balance model, Moscow, Vyschaya Shkola, 1991
2. W.Leontieff The structure of the american economy, Oxford University press, Oxford, 1985
3. S.Koshimura Theory of capital reproduction and accumulation, Tokyo, 1975
4. W.Leontieff Essays in economics, Transaction Books, Oxford, 1985
5. V.S.Dadayan Macroeconomical models, Nauka, Moscow, 1983
6. H.Gerig "On the use of econometric methods in the transitional period", Russian Economical Journal, 1993, n.2, pp.76 - 81
7. M.Bernshtam "The key direction to strengthen the tax base and the rouble rate", Russian Economical Journal, 1993, n.2, pp.26 - 33

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