Tuesday, March 12, 2013

Laffer Curve Russian Edition: 300K Entrepreneurs Quit over Taxes

Politicians hardly ever consider the economic effects of their actions. They almost see things as operating in a stasis.

Well here is another instance of the Laffer curve (elasticity of taxable income) in action, this time in Russia

Almost 300,000 self-employed Russians have quit business in Russia in the past three months due to social tax hikes, an Economics Ministry official said on Monday.

From January 1, 2013, the Russian government doubled the annual fixed-sum social security tax for individual entrepreneurs to 36,000 rubles ($1,200), in a move that directly affected babysitters, housemaids, tutors, handymen and other self-employed Russian workers earning 50,000-100,000 rubles a year.

“The new tariffs that came into force from January 1, 2013 and doubled the taxation base for fixed-rate payments reduced the number of individual entrepreneurs by 293,421 people between December 2012 and February 2013,” said Natalia Larionova, director of the ministry’s department for small-medium enterprise business and competition.

That represents 7 percent of the total number of individual entrepreneurs registered in Russia, she said.
Bottom line: When you tax something you get less of it. On the other hand when you subsidize something, you get more of it.

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