Federalization and fiscal federalism, Income part...

Federalization and fiscal federalism

In modern world practice there is a steady process of federalization and, together with it, the development of a system of budgetary federalism. At the same time, budget federalism is viewed as a system of relations between different levels of government regarding the optimal allocation of expenditures of budgets and incomes, their financing. It is based on a multilevel budget system - the principle of differentiation of powers in the financial sphere between different levels of power.

It should be borne in mind that the distribution of income and expenditure powers, the use of federal transfers and mechanisms for equalizing the budgetary security of the regions vary considerably by group of federal states, depending on the historical period of their activity, the development of the economic basis, etc.

According to the classification developed by the Forum of Federations, federal states can be divided into two main groups depending on the degree of "maturity" federal relations and the development of an economic basis. The first group includes the so-called mature federations ( mature federations ), which includes states with a long historical experience of federalism and a full-fledged financial system. These are usually countries with developed market economies (USA, France, Switzerland, Canada, Australia, Austria, Germany). The second group includes countries that are transitional , or emerging , federations ( transitional og emerging federations ). As a rule, these are the states that became federal in the second half of the 20th century. (India, Malaysia, Brazil, South Africa, etc.). To determine the role played by central and local incomes and expenditures in the budgets of states, it can be noted that the lowest level of concentration is accounted for by the developed mature economy, while for many transitional federations the state has a significantly higher share of resources. In countries with mature federalism, the state's share of revenues usually does not exceed 50-60%, while for countries with transitional economies this figure ranges between 70-90% and even higher. For such a large country as Germany, the share of central government in expenditures is about 55%, while for a country with an economy in transition, such as Bulgaria, this figure was 81%. As for unitary states, here the share of the state's participation in spending is somewhat higher. So, for France this indicator in 2011 was 68%. At the same time, direct alignment of the regions' budgets through additional federal transfers (direct financing) remains based on an assessment of financial needs.

Income part of the budget of foreign countries

The most important and leading part of the state's revenues are taxes. The use of tax payments for the formation of the revenue side of budgets of various levels and the solution of the fiscal tasks of the state is one of the main tasks of public finance. Tax systems of various countries of the world are characterized by a large variety of types of taxes and taxation objects, as well as a wide range of relationships between taxpayers and tax authorities. For the state, tax policy as an aggregate of economic, financial and legal measures for the redistribution of resources becomes one of the most important levers of state regulation.

Full or partial exemption from taxes is one of the necessary aspects of state regulation. At the same time, the most flexible form is partial exemption from taxes through a system of benefits for a certain part of the entrepreneurial income, thus providing flexibility and optimization of the direction of the measures applied (differentiation of tax rates, accelerated depreciation, etc.).

Reducing the role of public finance in the economy of developed countries in the 1980s and 1990s. again raised the issue of increasing the role of taxes in providing the expenditure side of the budget. This goal is achieved primarily by expanding the tax base, including previously unreached narrower sectors of the economy without a noticeable increase in the tax rate.

During this period, the following characteristics of the tax systems of developed countries were distinguished:

1) direct taxes prevail in the US, Japan, Germany, Canada, indirect taxes - in France and Italy;

2) in the leading developed countries under the system of progressive taxation, the role of the structure of income taxed under conditions of economic growth and inflation significantly increases. It is aimed at achieving such goals as ensuring the state's financial resources for the implementation of economic and social policies, carrying out regulatory measures in the field of economic activity by the state.

Globalization of the world economy has become one of the most important factors determining the development of tax systems in various countries of the world. In conditions of high mobility of the movement of entrepreneurial and financial capital in the global economy and the transfer of industries for the taxpayer, it becomes possible to choose the optimal scheme for paying tax payments. A lower level of tax rates may have a strong impact on capital inflows and the allocation of funds.

In the context of intensive processes of economic integration in the world, the processes of harmonization of national tax systems, aimed at establishing a unified order of tax regulation between individual states, are of great importance. The most significant development of these processes was in Western Europe, where harmonization of the tax systems of the EU member countries is progressing and where significant progress has already been made in a number of indirect taxes.

On the level of the tax burden, all countries of the world can be conditionally divided into two large groups: 1) countries with high taxes; 2) countries with a lower level of taxation.

Most advanced economies belong to a group of countries with a high level of taxation. As follows from Table. 22.1, corporate and personal tax rates reach 41% (Japan) and 54% (Canada) respectively, and tax rates for profit distribution in the form of interest, dividends and royalties fluctuate between 15-35%. In these countries, there is a clear procedure for levying taxes, monitoring financial reporting, and in cases of violation of tax laws, strict penalties and criminal sanctions are applied.

Table 22.1

The level of taxation for individual countries


Corporate taxes,%

Personal taxes (minimum rate),%

Personal taxes (maximum rate),%

Indirect taxes,%

Developed countries




50 (40% - nationwide, 10% - local)


(consumption tax)


0-39 (federal), 0-12 (states)

0 (federal), 0 (states)

39.6 (federal), 0-13 (states)


(states and local taxes)




75 (Personal Income Tax)


(by product group)






(by product group)


16-31 (11-15% - federal

+ 5-16% - province)

4 (0% - federal + 4% - province)

54 (30% - federal + 24% - provinces)






19/7 (products)

Emerging market countries




















17 (max)

Hong Kong










Source •. OECD tax data base, 2012.

Countries with a lower level of taxation can be divided into two main groups:

1) countries that have a high level of taxation but provide certain favorable conditions for established groups of companies, usually for the development of foreign economic activity and increasing investment attractiveness (Switzerland). To a large extent, this group includes countries with emerging markets (Qatar, Sri Lanka);

2) countries with low levels of direct taxes. The tax rates on income and individual income tax are less than 20%, and in some cases taxes do not exceed 10%. This group includes Singapore, Hungary, Israel, India.

Since direct taxes are levied on products and services immediately after their production and sale, they extend to the revenue generation stage, while indirect taxes (VAT, etc.) affect the consumption sphere to a greater extent. Typically, for developed countries, there is a marked difference in the level of indirect taxation by commodity group - the lowest rates are related to the group of food and other socially important goods (especially educational services).

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