The Impact of Size-dependent Tax Regulation on Firm Behaviour: Evidence Based on Russian Simplified Tax System

In this paper, we investigate the impact of the size-dependent tax policy on the revenue reporting behaviour of companies. More specifically, we estimate the relative excess mass of companies caused by the STS notch for 2016. Our setting is related to Kosonen and Matikka (2022) in the sense that responses to the STS threshold are not only local. The use of a methodology with such an assumption is important for the Russian case, as companies could respond to the STS notch with different margins, including the practice of splitting their business. In order to estimate the excess mass in the whole distribution below the threshold, we rely on the 2017 reform of the STS rules. According to the used method, the excess mass of companies caused by the STS notch is estimated by comparing the pre-reform and the post-reform revenue distributions over a broad revenue range below the threshold. The novelty of the study lies in the analysis of the behaviour of Russian firms in response to thresholds, which has not been done before in the Russian context. The empirical study is based on data from Bureau van Dijk's Ruslana dataset and covers the period 2016-2018. The results show that the reform caused changes in revenue distribution over a broad revenue range among Russian companies. First, there is an excessive mass of companies at the old threshold in 2016 compared to 2017 and 2018. The results also show that the change in distribution was more significant in 2018 than in 2017. Companies had more time to adjust to the new reality, the new threshold, and to understand that a larger number of them were eligible for the STS.