Personal Income Tax Deductions and Demand for Education: Case of Russia

Abstract

Tax system creates various incentive effects that can influence an individual’s educational choice. Many studies have been conducted on the effect of tax incentives on education, however, no study that reveals such an effect has been conducted in Russia. With this in mind, we aimed to analyse whether the tax incentives for education influence the household’s decisions to receive an education in Russia. In this context, we analysed the correlation between the number of individuals who received tax deductions and the number of individuals who received education by regions of the Russian Federation. The data source was tax reporting data of Federal Tax Service and the 2020 census data. The research methodology includes methods of regression and correlation analysis. The results show that tax incentives for education have low impact on the of household’s decisions to receive an education in the Russian Federation. Tax deduction has a stable but weak positive association with total numbers of students. The calculated parameters of the model explain the dependence between the deduction for expenses for own education and quantity of people who receive education by 9.2% and dependence between the deduction for expenses for full-time education of children and quantity of people who receive education by 5.5%. There is low probability that the announced rise of the limit of social deduction in 2024 will change the situation. But government should continue to provide federal funding through tax benefits to promote voluntary compliance by fostering favourable taxpayer views of the tax system.