-

VAT Increase from 18% to 20%: Macroeconomic Effects

Andrey Polbin – Head of Mathematical Modeling of Economic Processes Department, Institute for Applied Economic Studies, Russian Presidential Academy of National Economy and Public Administration; Head of Macroeconomic Modeling Department of the Gaidar Institute, Candidate of Economic Sciences. E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

The government proposes to increase VAT from 18% to 20% from January 2019. Main objective is to fund the budget as stated in the May Presidential Decree. According to our calculations, the rate increase will lead to a decrease in GDP, consumption, investments, exports and imports compared to the theoretical economic scenario which envisages no changes in fiscal policy. Still, VAT increase, compared to other possible ways of funding the planned rise in state spending, is an adequate measure of economic policy.

Key words: value-added tax, VAT upward adjustment, macroeconomic situation, President’s May Decrees.