Assessment of the Tax Potential of a Region and its Use for Public Management Decision Making

The tax potential (TP) of a region may be defined as maximum amount of the taxes that the regional authorities may theoretically raise. The understanding of the TP factors allows maximizing the efficiency of regional tax revenues management. This thesis discusses the factors that can define TP of a Russian region, according to policy-makers. The goal of this work is to test the significance of the TP factors identified by the policy-makers (whereas most papers are devoted to testing of factors identified by the academicians). The content analysis of the publications quoting various Russian policy-makers allowed us to identify the following factors (in order of decreasing frequency of their mentions in publications): investment attractiveness of the region, tax rates and new tax objects, the impact of the Federal tax service on TP, registration of taxable objects. Econometric analysis has shown that the investment attractiveness factors measured in terms of GRP, average per capita income, and employment ratio have the greatest impact on TP. Factors of the tax administration, measured by the number of on-site inspections and the amount of additional taxes and penalties based on their results, also significantly affect TP. Thus, the study results confirm that the policymakers should primarily focus on development of economy of a region and improvement the living standards of its inhabitants; the model suggests that this will improve the tax revenue inflow. However, identification of new taxable objects and stricter tax control have much smaller influence on the regional TP. Keywords: tax potential, tax administration, tax revenues, regional economy.