Falling Tax Compliance and the Rise of the Virtual Budget in Russia
The decline in cash revenue in Russia has been the key macroeconomic policy failure of the transition. During 1994-98, a sharp deterioration in cash compliance was offset by a rise in non-cash revenue, as the government increasingly financed its spending through mutual arrears write-offs. This paper argues that the fall in cash compliance emerged when money printing was replaced with a method of budget financing that did not, in the short run, compromise the government's goals of low inflation, a stable exchange rate, and low interest rates, but which ultimately has led the government into a low cash revenue trap. Copyright 2002, International Monetary Fund
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