15.05.2015 Seminar held by the International Fiscal sustainability Department

Larry Kotlikoff, Professor of the Boston University, who is in charge of the department gave a lecture on the theme "Simulating Russia's Challenging Economic, Demographic, and Fiscal Transition". He gave an in-depth analysis of dynamic scale model of life cycle for simulation of demographic and fiscal transition economy of Russia under the favorable and unfavorable prices on natural resources. The model embraces Russia, the USA, China, India, the EU, Japan, and Korea. The model forecasts sharp growth of tax rates in the US, the EU, India and Russia. Besides, this growth will be so high that its political expediency is in doubt taking account real tax receipts and tax avoidance risks.

Demographic and fiscal transition economy of Russia is becoming more complicated due to high dependence of the country from the extraction of energy resources together with the risk of constant low prices on the resources.

Provisional measures which allow to alleviate transition of Russian economy to a new equilibrium including pension and tax reforms as well as sharp birth rate. Mentioned measures are not compulsory for the implementation by the government. However, lack of serious and timely steps will considerably aggravate the situation. At the same time, short-term loans aimed at postponement of due economic policy measures simply deepen the fiscal burden in Russia.

Article "Simulating Russia's Challenging Transition" >>>

Evgeny Goryunov, researcher of the Gaidar Institute, deliberated on the updated assessment of the long-term budget gap for Russia recently published in the joint monograph "Theoretical Basis of Budget Gap as an Index of Long-Term Fiscal Sustainability and Its assessment for Russia" written together with Sergey Sinelnikov-Murylev and Laurence Kotlikoff.

In the paper assessment of the budget gap for the enlarged Russian government is made within three scenarios which differ by inherent hypothesis about demographic trends, labor productivity growth rates, hydrocarbon reserves, oil and gas prices, etc.

As Evgeny Goryunov noted, depending on a scenario the size of the budget gap will fluctuate from 11.8% to 14.1% of the aggregate GDP value which speaks about rather substantial long-term imbalances. If we judge by the current level of public debt and budget deficit then the state of the Russian budget looks significantly less stable than the state of budget in the majority of developed countries and countries with developing economies. This, however, should not be misleading: in the long-term Russian public finance are subject to destabilization risks as well as other countries. At the same time, main sources of budget imbalances in Russia will include growth of public expenditure on medical and pension services due to aging of population and contraction of revenues from the oil and gas sector in percent of GDP.

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In the framework of seminar they discussed the development of the general equilibrium simulation model taking account issues liked with environmental deterioration including tax instruments aimed at the alleviation of this global challenge. The research's aim is to understand how inability to cope with this global externality affect the demographic and financial trend of each country including Russia. Within this research, they plan to model combating emissions of the current generations but the future generation will pay for it through the tax system. They plan to study external factors associated with hydrocarbon emissions in each country which affect other countries from the point of view of well-being of the population or cost increase of their production.

The seminar was attended by Maria Kazakova, Kristina Nesterovaexperts of the Financial Sustainability Department, and Andrey Polbin, senior researcher of the Center for Macroeconomics and Finance.