Manifestations and Perception of Economic Inequality of Citizens in Russia and the Impact of Personal Income Tax Deductions on it: Analysis of the Results of a Sociological Survey

Pugachev Andrei Aleksandrovich PhD in Economics Associate professor, Department of Baking and Finance, Yaroslavl Demidov State University 150000, Russia, Yaroslavl region, Yaroslavl, Komsomolskaya str., 3, office 304 andrxim@yandex.ru Other publications by this author

IntroductionInequality and poverty of citizens are among the key socio-economic problems of our time, it is no coincidence that the UN General Assembly includes their overcoming in the list of Sustainable Development Goals until 2030 ^[1].

These problems are especially relevant for Russia. The inequality of citizens has been at a consistently high level over the past 30 years, despite the measures taken by the Government: the Gini coefficient exceeds 0.4 ^[2]. The poverty level in Russia today is significantly lower than in the 1990s, being in the range of 10.8-13.4% since 2007, however, up to 20 million people live below the poverty line, even according to official estimates. The trends of economic recession since 2020 in Russia, both as a result of the coronacrisis and sanctions pressure, increase the risks of declining well-being.

The economic inequality of citizens is multidimensional. It finds various manifestations: income inequality, consumption inequality and wealth inequality. It is directly related to non-monetary inequality, expressed in differentiation in terms of access to communications and the Internet, to quality medicine and education, etc. Economic inequality is decisive in relation to these manifestations of non-monetary inequality. ^{[3, 4, 5, 6]}

Of interest in the context of the issues under consideration is the subjective assessment or perception by citizens of the degree of inequality, regardless of its calculated statistical indicators. The perception of the level of inequality by citizens makes it possible to determine the risks of socio-economic stability in society, since it is the perception of inequality by citizens, and not its indicators, that makes it possible to predict the behavioral reactions of the population ^[7]. The request to reduce inequality is primarily related to the subjective assessment of inequality, and not its actual depth. ^[8]. "The perception of inequality existing in society and patterns of distribution of property rights as unfair can contribute to delegitimization in the eyes of the population of the entire institutional structure of society, opportunistic behavior in relation to the "unfair" system of rules established in society" ^[9].

This article is a continuation of the analysis of the results of the study conducted in the previous article "Manifestations of economic inequality of citizens in Russia: analysis of the results of a sociological survey", published on the pages of the journal No. 4 for 2022 ^[10]. So, earlier we found that the key manifestations and factors of economic inequality of citizens in Russia are: poverty of young people under 25, poverty of rural residents, poverty of students, poverty of unemployed pensioners and the unemployed, income inequality of citizens in the regional context. These manifestations make it possible to form the portrait features of the most and least affluent citizens in Russia.

The purpose of the study is to identify and assess the manifestations of economic inequality of citizens in Russia, as well as its perception based on the results of a sociological survey to determine the prospects for smoothing inequality.

The scientific novelty consists in identifying the manifestations and assessing the perception of economic inequality by Russian citizens based on the interpretation of the results of a sociological survey, as well as in substantiating the aggravating effect of personal income tax deductions on inequality.

Methodological and information base of the studyThe sociological study was conducted on the basis of a sociological survey in June-July 2022 by a continuous questionnaire using Google Forms.

1063 respondents from 45 subjects of the Russian Federation were interviewed. The survey covered demographic characteristics, the level of well-being and consumer preferences of citizens, their marital status, etc.

The survey was attended by 70% of women and 30% of men, 89% of urban residents and 11% of rural residents, 19% of citizens with secondary education and 81% with higher education, including 10% with an academic degree, 49% married and 51% single. The age structure of the respondents: under 25 years – 25%, 25-35 years – 37%, 35-45 years – 18%, 45-55 years – 11%, 55-65 years - 7%, over 65 years – 2%. The status of respondents: working – 65%, working students – 11%, students – 9%, entrepreneurs – 4%, working pensioners, unemployed and pensioners – 3% each. ^[10,11]

Based on these characteristics, the limitations of the representativeness of the sample are the predominance of the urban population over the rural, young people over the elderly, men over women. It is also a limitation to conduct a survey via the Internet, since this narrows the sample in part of citizens who do not have access to the Internet. Limitations are taken into account when forming conclusions, since they are formed based on a comparison of groupings by manifestations of inequality with the distribution of respondents by the level of average monthly personal income. The average monthly personal income is determined by the respondents independently in aggregate from all sources: wages, pensions, benefits, income from entrepreneurial activity, securities and financial instruments, rent, etc. The sampling error is 3% with a significance level of 0.05. Thus, taking into account these limitations, the formed sample can be considered representative of the purpose of the study with the need to take into account the limitations when forming conclusions.Citizens' perception of economic inequality

According to domestic research, up to 70% of Russians suffer from income inequality, up to 50% - from inequality in access to medical care, up to 40% - to good jobs, up to 36% - from inequality in housing conditions and up to 26% - from inequality of children from various social strata in opportunities for further development ^{[12, 8]}.

This indicates a rather acute perception by citizens of the injustice in the distribution of income in Russia. Income inequality is the most painful for modern Russian society and for households (84% and 69% of the surveyed citizens), while income inequality is perceived more acutely over time. ^[13]

Reputable international studies record comparable results. For example, according to the research results of the International Social Survey Program, it was found that in 2019 73% of Russians fully agree that the differences in income of citizens in Russia are too large, 68% fully agree that the state should reduce income differences between poor and rich citizens, and 48% fully agree that the Government is absolutely unable to cope with the task of reducing income inequality of citizens. In general, 95% of Russians consider the current distribution of income between rich and poor citizens to be unfair. ^[14] "The perception of inequality by the Russian population differs from the perception of residents of other countries by a more pronounced critical assessment of the depth, injustice, social conflict and state actions to reduce differences" ^[15].

As part of the sociological study, the sufficiency of citizens' incomes was assessed in the context of the income groups of the respondents. Figure 1 shows the ratio of the respondents' income level and the assessment of its sufficiency for current and long-term large expenditures.

Figure 1 – The ratio of the income level and the assessment of its sufficiency by respondents  

Compiled by the author.

According to the range of the level of average monthly personal income, the sample of respondents follows a normal distribution. So, 11% of respondents have incomes up to 15 thousand rubles, that is, below the minimum wage ^[16] and the subsistence minimum, and from 100 to 400 thousand rubles. 40% of respondents have an income of 15 to 40 thousand rubles, that is, below the level of the average per capita monetary income of the population in the country (40.04 thousand rubles per month for 2021 ^[17]), 37% - from 40 to 100 thousand rubles, that is, above average. 1% of respondents (11 people) answered that they have incomes over 400 thousand rubles, the potential income of these citizens falls under the increased personal income tax rate of 15%. ^[11]

The respondents' assessment of the sufficiency of income generally corresponds to its level: with the growth of income, the assessment of its sufficiency increases both for the purchase of food and for making large purchases and investments. The majority of respondents (71%) estimate their income as sufficient for current expenses with the need to attract savings to make large purchases. Citizens mostly limit their current needs to the level of income, adjusting to it and planning large purchases in advance with the formation of necessary savings. ^[10] This, in our opinion, largely explains the fact that with the acute perception of inequality and injustice in the distribution of income in Russia, there is no intensification of protest moods and the risks of threats to socio-economic stability are not realized.

Manifestations of inequality of citizensAs part of the continuation of the fixation and analysis of the manifestations, characteristics and factors of inequality of citizens reflecting the portraits of income groups, according to the results of a sociological study in this article, we note the following.

1. Savings on food and consumer preferences

One of the types of economic inequality of citizens is inequality of consumption ^[18]. Food consumption is a special case here, it shows the inequality of citizens in terms of income: with an increase in income, the need to save on food is reduced. This is also reflected in the survey results, which is illustrated in Figure 2, where the columns in each income group reflect the proportion of respondents who save or do not save on food. In general, the sample is about equally divided between those who have to save on food (49%) and those who do not save (51%). For poor citizens with incomes below the minimum wage, the share of those who have to save is 67.2%, and in the group with incomes above average – from 100 to 400 thousand rubles – 20.5%.

A similar situation is developing with regard to consumer preferences. Respondents chose the answer to the question: "When choosing food, you primarily focus on ..." between the option "Product price, discounts" and the option "Taste, quality, environmental cleanliness". In Figure 2, the distribution by income groups is reflected in graphs. In general, the answers to the sample, as well as to the question about saving on products, were distributed almost equally – 52.7% prioritize price, and 47.3% – taste and quality. With the growth of income, priority is increasingly given to taste, quality and environmental cleanliness. If in the group of poor citizens with incomes below the minimum wage, the share of choosing products based on prices and discounts is 71.4%, then in the group with incomes from 100 to 400 thousand rubles – 27%, and with incomes over 400 thousand rubles per month – 18.2%.

Figure 2 – Distribution of respondents according to the need to save on food and consumer preferences

Compiled by the author.

Thus, in general, with the growth of income, the need to save on food goes away, and when choosing them, priority is given to taste, quality and environmental cleanliness instead of price and discounts.

2. Tourist activity

Tourist activity also depends on the level of income, since the share of respondents making tourist trips increases with income growth, as shown in Figure 3. The nuance here is that the growth of tourist activity for both foreign and domestic trips begins with an average income level of 40-100 thousand rubles per month, in contrast to opportunities not to save on food, where growth begins with the second income group (incomes above the minimum wage).

Figure 3 – Distribution of respondents according to the answer to the question: "Have you made tourist trips during the year?"

Compiled by the author.

3. Availability of credit obligations

In general, 43.8% of respondents have credit obligations (on loans, credit cards, loans, loans) in the sample. Similarly to the previous manifestations of inequality, the availability of credit obligations increases with income growth, which is illustrated in Figure 4. In this case, we did not assess the level of credit burden and the amount of debt, however, the data obtained indicates a low possibility of attracting loans by poor citizens (14.3% of respondents with incomes below the minimum wage have credit obligations) and the popularity of attracting loans by secured citizens (72.7% of respondents with incomes over 400 thousand rubles have credit obligations).

Figure 4 – Distribution of respondents by availability of credit obligations

Compiled by the author.

4. Use of medical and educational services

The dependence of consumption inequality on income inequality is also clearly manifested in the use of paid educational and medical services, which is illustrated in Figure 5. The histogram columns on it reflect indicators for educational services, and graphs for medical services.

Figure 5 – Distribution of respondents by use of medical and educational services

Compiled by the author.

In the whole sample, the demand for paid educational services (28.8%) is lower than for paid medical services (48.5%). For certain income groups, the demand for paid medical services is also higher than for educational services. With the growth of the income level, the share of citizens who prefer paid services to free ones is growing. At the same time, for educational services, noticeable growth begins with the group with average incomes – 40-100 thousand rubles per month, unlike medical services, where it begins immediately with the second group – incomes below average – 15-40 thousand rubles. This is due both to the value of health and a healthy lifestyle, and, in general, to the wider spread of paid medical services in Russia compared to educational ones.

5. The demand for personal income tax deductions

The demand for personal income tax deductions is a manifestation of inequality and a reflection of the level of welfare of taxpayers. The use of tax deductions by respondents is shown in Figure 6.

Figure 6 – The demand for personal income tax deductions depending on the respondent's income   

Compiled by the author.

With the growth of income, the demand for property tax deduction increases, as the possibility of purchasing (or building) housing increases. The property tax deduction was used by an average of 25% of respondents. For poor citizens (income does not exceed 15 thousand rubles per month, i.e. below the minimum wage), this share is 11.8%, for citizens with incomes below average – from 15 to 40 thousand rubles – 18.3%, with an average income from 40 to 100 thousand rubles – 31.3%, with incomes above average – from 100 to 400 thousand rubles – 35.2%, for the most affluent citizens with incomes over 400 thousand rubles – 45.5%.

For investment tax deductions for personal income tax, a similar situation has developed: with the growth of income, the investment activity of taxpayers increases, and its significant growth begins for incomes above 100 thousand rubles per month. On average, 8.3% of respondents used investment deductions. For poor citizens – 2.5%, for citizens with incomes below average – from 15 to 40 thousand rubles – 2.4%, with incomes from 40 to 100 thousand rubles – 7.9%, with incomes from 100 to 400 thousand rubles - 26.2%, with incomes over 400 thousand rubles – 27.3%.

Social deductions are more evenly distributed among income groups of taxpayers, and the dependence of the demand for social deductions for personal income tax on the level of income of the taxpayer, according to the results of a sociological survey, has not been established.

The current bias in favor of investment and property taxes deductions for personal income tax to the detriment of social and standard deductions does not allow to realize the potential of their impact on the inequality of citizens and poverty.

Of interest is the further granulation of the dependence of the demand for a certain tax deduction on the availability of corresponding expenses in the context of income groups of respondents. Figure 7 shows the share of citizens who have used the personal income tax deduction in the total number of citizens with the corresponding expenses.

Figure 7 – The share of citizens who have used the personal income tax deduction in the total number of citizens with the corresponding expenses   

Compiled by the author.

The share of those who used the property deduction in the total number of respondents with real estate increases with income growth: from 18.4% among poor citizens (with incomes below the minimum wage) to 50% for the most affluent citizens (income over 400 thousand rubles per month), with an average sample share of 34%.

The share of those who used the deduction for medical expenses in the total number of respondents who have expenses for paid medical services also increases with income growth: from 0 for poor citizens to 30% for the most affluent. We emphasize that, in general, the demand for a tax deduction for medical expenses is low – 2.5% on average in the sample. This is due to the difficulty of collecting documents confirming expenses in order to receive a deduction with relatively low expenses themselves.

In terms of deduction for education expenses, the opposite situation has developed: the share of those who used the deduction in the number of respondents who have expenses for paid educational services decreases with an increase in income from 100% for the least affluent citizens to 25% for the most affluent. We believe that getting an education is valuable for the least well-off citizens from the perspective of improving the well-being (of their own or children) in the future. The demand for personal income tax deduction for training expenses is the highest: on average, 64% of the sample. This is due to the fact that obtaining documents confirming the existence of expenses does not require high labor costs compared to the costs of treatment with more substantial amounts, for example, for higher education.

Thus, current income inequality and consumption inequality are similar in manifestations, but still have differences in the types of economic inequality of citizens. Current income inequality largely determines consumption inequality. Thus, with the growth of incomes, the need to save on food is reduced, the importance of higher-quality food is increasing, the demand for tourist trips and paid educational and medical services is increasing, and the share of citizens with credit obligations is also increasing. However, there are nuances. For example, it was revealed that the growth in demand for tourist trips and paid educational services increases with an increase in income only starting with the middle-income group, for poor citizens and citizens with incomes below average, such a trend is not observed.

The most popular among less affluent citizens are tax deductions for education expenses. The current bias in favor of investment and property tax deductions for personal income tax to the detriment of social and standard deductions does not allow realizing the potential of their impact on the inequality of citizens and poverty. In fact, property and investment deductions, used mainly by more affluent citizens, lower the average effective personal income tax rate for them at a level lower than that of poor citizens, which leads to regressive income taxation.

DiscussionIdentification of factors and manifestations of inequality makes it possible to determine the directions of the smoothing effect of the state on inequality, taking into account these factors and manifestations in the development of socio-economic policy of the state.

It has been established that the key areas of impact are: poverty of young people under 25, poverty of rural residents, poverty of students, poverty of unemployed pensioners and the unemployed, income inequality of citizens in the regional context, the need to save on food, providing high-quality products to low-income strata. Previously, we have already substantiated a set of socio-economic policy measures that would help to smooth out the inequality of citizens and reduce poverty by influencing the factors of inequality and poverty. Such measures include: support for young professionals, development of rural areas and agricultural enterprises, outstripping the increase in state pension provision and stimulating the development of non-state and corporate pension provision, the development of material support for motherhood and childhood, etc. ^[10]

Taxation is a recognized state financial instrument for smoothing inequality. However, the current tax system in Russia does not smooth out the economic inequality of citizens, but on the contrary, strengthens it ^{[19, 20]}. We have shown this by the example of the demand for personal income tax deductions, analyzed according to the results of a sociological survey.

According to the International Social Survey Program, in Russia in 2019, 70% of respondents noted that citizens with high taxes pay low or too low taxes, and 85% of Russians surveyed believe that taxpayers with high incomes should pay a larger percentage of their earnings as income tax.  ^[14] Accordingly, the issue of ensuring the progressiveness of income tax has matured in Russian society, and therefore the transition to a progressive rate of 15% from 2021 is a necessary, but not sufficient step.

The results of the study correspond to the previously formed concept of the need for state regulation in order to smooth inequality and overcome poverty, for example, J. Stiglitz ^[6], E. Atkinson ^[21], as well as domestic scientists, who also note that the reduction of inequality and poverty "is achieved only in their combination, and not only targeted assistance to the poor, which can be carried out at the expense of an additional resource and the diversion of income from the richest part of the population (an additional resource is preferred), but also by introducing a progressive tax system aimed at solving this problem (diverting the income of the rich)" ^[22].Many authoritative Russian scientists today note that "the long-term unresolved issues related to the really tangible increase in the level and quality of life for a wide segment of the population, as well as a more equitable distribution of national welfare, negatively affects the dynamics of public opinion regarding the effectiveness of the public administration system" ^[23].

Therefore, the problem of economic inequality of citizens in Russia requires close attention of the Government to develop a comprehensive solution for the impact on all identified factors and manifestations of inequality.

In the current situation of the current record level of budget deficit (2.58 trillion rubles for the federal budget in January-February 2023) and new challenges to budget policy within the framework of sanctions pressure and ITS, solving the problem of smoothing inequality, including through the development of social deductions for personal income tax, becomes a non-trivial task. At the same time, the obvious significance of the task is dictated by the fact that it was set by the President of Russia in the current realities – during a meeting with the heads of the constituent entities of the Federation in March 2022 ^[24] and in a Message to the Federal Assembly in February 2023 regarding the expediency of increasing social tax deductions for personal income tax ^[25]

ConclusionsThe conducted research allowed us to formulate the following conclusions.

1. Perception of inequality by citizens is a significant characteristic along with calculated indicators of inequality. The risk of a threat to socio-economic stability depends on the perception of inequality. Income inequality is acutely perceived by Russian citizens: most citizens consider the distribution of income between rich and poor to be unfair and unnecessary.

The majority of respondents (71%), regardless of whether they belong to one or another income group, assess their income as sufficient for current expenses with the need to attract savings for making large purchases. That is, in subjective perception, inequality in income sufficiency manifests itself significantly weaker than inequality in actual income. This may explain the fact that with the acute perception of inequality and injustice in the distribution of income in Russia, there is no intensification of protest sentiments and the risks of threats to socio-economic stability are not realized.

2. The factors of inequality of citizens in Russia are: poverty of young people under 25, poverty of rural residents, poverty of students, poverty of unemployed pensioners and unemployed, income inequality of citizens in the regional context. Economic inequality of citizens manifests itself in inequality of income, consumption and well-being. According to the results of a sociological study, the manifestations of inequality of citizens are the need to save on food and consumer preferences, tourist activity, the availability of credit obligations, the use of medical and educational services, the demand for personal income tax deductions. On the basis of these factors and manifestations of inequality, the socio-economic policy of the state should be based on smoothing inequality, its focus on these factors and manifestations will ensure effective impact on them in order to overcome inequality.

3. The most popular among less well-off citizens are tax deductions for education expenses. The current bias in favor of investment and property deductions for personal income tax to the detriment of social and standard deductions does not allow realizing the potential of their smoothing effect on the inequality of citizens. Property and investment deductions used by more affluent citizens lower the average effective personal income tax rate for them at a level lower than that of poor citizens, which leads to regressive income taxation.