Fiscal Effects of Introducing New Social Standards in Ukraine

Abstract

The article is aimed at studying and assessing the positive changes that occurred in the budgeting process due to changes in social standards in Ukraine during 2010-2020. The hypothesis testing is carried out on whether there is a link between changes in social standards such as the subsistence rate and the minimum wage, and the amount of tax revenues to the consolidated budget and the amount of budget expenditures. Modern approaches to assessing the impact of social standards are analyzed, and conclusion is made that fiscal effects are hardly studied in literature. Based on a comparative analysis of the dynamics of the established and actual subsistence rate and the main targets stated in the Consolidated Budget of Ukraine for 2010-2020, quarterly regression models are built, in particular, with pseudo-observed variables. A significant gap has been observed between the established and actual subsistence rates, which increases over time. At the same time, the minimum wage is approaching the actual subsistence rate for employable population, which is a positive fact. The aggregate income of the population main exogenous variable in tax revenues models. A model of household income dependence on average wages, average pension and subsistence rate is built. It is shown that the increase in the minimum wage in 2017 did not have the desired direct fiscal effect on personal income tax, unified social tax revenues and public expenditure on social insurance. The indirect impact on value added tax and excise tax revenues, which could be expected due to the increase in the household purchasing power, is also insignificant. The reason for this is the halving of the ratio between the minimum and average wages due to its concealment, the high level of the shadow economy and artificial understatement. It is shown that the consolidated budget expenditures on social security and wages are more sensitive to changes in various social standards, thus creating risks of macroeconomic instability in Ukraine.

Keywords

• social standards
• tax revenues
• modelling
• minimum wage