Fiscal policy and incentives for development of the Soviet planned economy in the industrialization period

Abstract

The article is aimed at studying the Soviet fiscal policy and its effects on the country’s economic development in 1926–1940. We used a historical and logical method to research the effectiveness of the two instruments of taxation – the turnover tax and tax charges on profits – and their role in the impressive achievements of the Soviet economy. To analyze and compare the data we used the key indicators of economic development and tax collection for 1926–1940. The results of the analysis have confirmed our hypothesis that the turnover tax and tax charges on profits along with price regulation and planned economy led to the formation of a cost-effective economic model in the USSR. We have shown that this model ensured constant reduction of production costs, accelerated growth of the urban population and unprecedented expansion of heavy industry. Radical simplification of the tax system, which was a part of the 1930s reform, not only had a considerable fiscal effect but also affected social development. The turnover tax and tax charges on profits allowed the government to mobilize considerable resources for investment to stimulate growth in production of heavy industry at a rate of 10–16% a year, which created a multiplier effect in the whole economy. However, financial resources were mobilized at the expense of consumers, since higher taxes were mainly imposed on enterprises of light industry and food industry. This led to “commodity hunger”, the introduction of ration cards, and strict administration. It is concluded that the distinctive feature of the Soviet fiscal policy was its complex nature and subordination to the single goal of the country’s industrialization. For citation Sodnomova S. K., Leontyeva Yu. V. Fiscal policy and incentives for development of the Soviet planned economy in the industrialization period. Journal of Tax Reform. 2019;5(1):70–82. DOI: 10.15826/jtr.2019.5.1.061 Article info Received December 20, 2018; accepted March 25, 2019