CLEMSON — Like many of their American counterparts, Russian citizens also hide their earnings to avoid the tax man, according to research conducted by a Clemson University economist. That research recently received national recognition by a Russian consortium of highly regarded public policy and economics organizations.

Clemson's Sergey Mityakov was recognized in his native Russia for research on hidden income.

Clemson’s Sergey Mityakov was recognized in his native Russia for research on hidden income.
Image Credit: Ashley Jones / Clemson University

Sergey Mityakov, associate professor in Clemson’s John E. Walker Department of Economics, recently received a National Award in Applied Economics (honorary mention) in Moscow. This award is presented biannually for outstanding research that analyzes the Russian economy.

Mityakov co-authored the research, and shared the award with Serguey Braguinsky of the University of Maryland and Andrey Liscovich of Harvard University. Their study, which examined public administrative data in Moscow from 1999 to 2003, found that up to 80 percent of citizens’ earnings are hidden in the private sector and in parts of the government and public services sectors. The research suggested hidden income is especially noticeable in smaller companies and industries such as trade and services, where cash flows are easier to manipulate.

Mityakov said the research strategy was based on comparing employee-reported earnings to market values of cars owned by corresponding individuals and their households, which is likely to better reflect the incomes actually earned. The authors collected data from the internet and other sources and performed their analysis using advanced econometric techniques.

Overall, the research found that for a majority of Moscow’s registered car owners, estimated actual earnings exceed reported earnings by a factor of three or more.

“The research found considerable hidden earnings among smaller and private domestically owned companies, but not among employees in foreign-owned or larger firms. In terms of sectors of economic activity, hidden earnings were more widespread in retail/wholesale trade, services and less prevalent in utilities and manufacturing sectors,” said Mityakov. “It is much more difficult, especially in heavily regulated industries, to hide income.” Among public sector employees, hidden earnings were especially pronounced in state-run education and health care sectors.

A consortium of Russian public policy and economic organizations cited Sergey Mityakov's research.

A consortium of Russian public policy and economic organizations cited Sergey Mityakov’s research.

Mityakov said the research also sheds light on the decline in Russia’s gross domestic product (GDP) after the collapse of communism and a subsequent recovery.

“Our research would indicate that official GDP statistics might have overestimated the decline in the Russian GDP following the fall of communism,” said Mityakov. “In this regard it is a question of future work to what extent rapid economic recovery observed in Russia in the 2000s is due to real growth versus better reporting of incomes that resulted from government efforts to fight tax evasion.”

The National Award in Applied Economics was established in 2009 by the Higher School of Economics (HSE, Moscow), New Economic School (NES, Moscow), the Ural Federal University (UrFU, Ekaterinburg), Association of Russian Economic Think Tanks (ARETT, Moscow), RAS Institute of World Economy and International Relations (IMEMO RAS) and business magazine “Expert” (Moscow).