The impact of tax deduction on inequality in Russia

Abstract

The article examines the impact of tax deductions for education and healthcare on income inequality in Russia. The objective of the study is to quantify the redistributive effects of this fiscal measure. Additionally, the paper assesses the potential effects of proposed reforms to tax deductions, with a particular focus on changes proposed in the President’s Address to the Federal Assembly in February 2023 and implemented in 2024. The study uses data from the Federal Tax Service and the Russia Longitudinal Monitoring survey of the National Research University Higher School of Economics (RLMS-HSE), in conjunction with the microsimulation model RUSMOD, which enables the estimation of the short-term redistributive effects of changes in taxes and transfers. The study demonstrated that the current tax deductions for education and health care have a marginal impact on income inequality. Conversely, if tax deductions are reformed in a manner that increases their limits and take-up, this may result in an increase in income inequality.