Международная студенческая научно-практическая конференция «Инновационное развитие государства: проблемы и перспективы глазам молодых ученых». Том 1

PhD Jakovenko A.G., Mudrenko A.A., Polushenko V.A.

Oles Honchar Dnipropetrovsk National University, Ukraine


Ukraine's state budget deficit (according to the Ministry of Finance) amounted to about 10% of GDP in 2010 and 9% of GDP in 2009. Ukraine's chronic budget deficit is the result of imperfections in the existing tax system. From the tax bearers’ point of view, they not only pay government expenses, but also overpay and as a result bear additional losses, as tax burden is unevenly distributed in the shadow economy and thus the mechanism of income redistribution through the budget is distorted. At the same time, it is impossible to implement the state macroeconomic policy properly without a clear understanding of the real scale of the economy [3].

To quantify a consumer’s loss, Diamond and McFadden, relying on Hicks work, introduced the concept of an additional compensating income (ACI). This amount should be added to consumers’ incomes so that after tax payment the level of their welfare remains unchanged. The ACI volume can be estimated in terms of statistics, if the sum of tax proceeds is subtracted from the ACI volume, then it is possible to define unknown additional losses on taxes, which is known in scientific literature as the Marginal Excess Burden. The excess burden (MEB) is the difference between the sum of ACI and an increase in tax collections [2].

The problem of taxation burden affects various agents of the economic activity [4]:

- the state which as an agent of management of the economic activity in its territory and redistribution of revenues received from the economic activity (in the form of taxes) in favor of other elements of the state and social life;

- organizations and businesses which are objects of the state control action and agents of entrepreneurial business, ensure the generation of the source of business income and, accordingly, the tax base;

- employees who are participants of business activities, earn their living and develop their capabilities, and are members of the public life.

Each of these agents has their own interest in tax issues, so potential alternatives with respect to the current tax system are different. The state is interest in the macroeconomic analysis of tax burden, because taxes in a varying degree distort the optimal allocation of resources in the economy. Besides, taxes are a basic source of the state livelihood, and therefore it is interested in maximizing the collection of tax payments. The task of the state is to find an optimal combination of taxes and rates that, on the one hand, ensures an acceptable level of tax collection and on the other hand does not reduce the competitiveness of domestic enterprises and does not force them to go into the shadow sector.

The degree of the current tax "burden" of the Ukrainian enterprises is rated as critical by various experts.

The purpose of this paper is to study the general equilibrium model such as Debreu with taxes, including a representative consumer, a producer, and the state. The influence of changes in tax rates and the inflation rate upon such economic indices as investments and employment has been analyzed. The impact of the inflation rate on a consumer type, and taxes on employment and investment has been defined [1; 2].

Determination of excess tax burden:

· The economic-mathematical target setting to describe the economic system;

· The definition of marginal excess taxation burden;

· The description of the economic system equilibrium after changing taxes and obtaining a formula to calculate the MEB.

Economic-mathematical target setting

The theoretical version of the model describes a closed economy with three agents: a representative consumer, a producer and the government, tied by limits, and together called the community. The model consists of three markets: food, labor and money.

In the model, the consumer chooses consumption c(t), the labor supply l(t), real money balances Md(t) so as to maximize his utility function, taking into account the budget limit [1]:


The manufacturer selects the sequence of the labor employed volume 1(t) and maximizes his net profit, i.e. the one which remains in his possession after taxes:


where F is the production function, which determines the net output over a period of time, it depends on the capital employed к and labor l; α and β are the tax rates on profits and value added respectively.

The state sets the tax rate and sets the money supply, and then it calculates its costs of p(t)g(t) in each period.

It is necessary to determine the equilibrium state in the economy, and on the basis of these data to find and analyze the value of the marginal social loss.

Current taxes affect economic agents' decisions as for production and consumption, and distort the optimal allocation of resources. As a result, society pays not only the government expenses, financed at the expense of taxes, but also carries additional losses. The estimation of these losses, which are called tax burden or excessive tax burden, should be taken into account while determining the tax burden and analysing options for improving the tax system.


1. Мовшович С.М. Общественные потери от налогов и инфляции / С.М. Мовшович // Экономика и математические методы. – 2000. – №4.

2. Debreu G. Economies with a finite set of equilibria/ Debreu G.// Econometrica. – 1970. – 38р.

3. РБК – Україна [Електронний ресурс]. – Режим доступу: http://www.rbc.ua

4. Черногорский С.А. Предельные избыточные тяготы налогообложения в экономиках некоторых стран ЕС и России / Черногорский С.А. // Association for studies in public economics. The fifth international conference on “Public sector transition”. – 2002.