revenues than the federal government, they fail to remit even the statutory federal share, as Table 20 revealed. So, if the share of natural resource taxes increases, the federal budget would be expected to suffer some losses.

4.15 The first argument is flawed. In Russia, natural resource tax revenues _per capita_ are highly correlated with non-natural resource tax revenues _per capita._ The correlation coefficient was 0.906 in 1997 (USGTAT 1998b). In other words, resource-poor regions find it hard to sustain themselves with high or low reliance on natural resource taxes because they do not have a solid tax base. The shift does not make matters any worse. Interregional subsidies are currently needed to help poor regions and would still be needed after the role of natural resource taxes has been enhanced.

4.16 As to the second risk, it is real but can mitigated. Greater centralization of natural resource revenues, and redistribution of the revenues on a needs basis, may be necessary to make the natural resource taxation reform sustainable in a federal context. This is in fact what the Putin administration is proposing to do by federalizing a greater proportion of the natural resources not equally distributed across regions (essentially hydrocarbons and precious metals): "the _basic federal taxes_ should be: customs duties, the VAT, excise taxes (paid by business firms), the federal profit tax (corporate income tax on enterprises and organizations), the personal income tax, payments for use of natural resources which are not uniformly distributed (above all for extraction of raw hydrocarbons and other raw material resources for export), and federal licensing and registration fees." (GOR 2000, 162)30 In addition, unlocking the rent would inject more cash into the state's finances, only a portion of which would be retained by the region. The federal governiment could therefore witness a net inflow of revenues.

# A **Hypothetical Example: Timber Rent Tax Reform**

4.17 This section envisions the potential response to increased taxation of rent grounded in the withdrawal of the timber rent. This simple political analysis gives some insight into the future of natural resource tax reform, in particular by trying to identify the political constituency at the federal, regional and local level. At least 10 different types of stakeholders can be distinguished, including the three levels of government (federal, regional and local), the three branches of authority of the Forest Service, the three main groups of protagonists in the forest industry (loggers, processors and vertically integrated companies), and traders. All stakeholders are interested in forest rents, though for different reasons. For simplicity purposes, we assume that increases in rental payments would materialize through increases in stumpage fees.

> **3O** The distinction between "uniformly distributed" and unevenly distributed natural resources is somewhat artificial since the disparity in natural resource endowment is not just driven by the absolute quantities of resource reserves, but also by the inherent value (rent) of those reserves, which is itself a function of quantity, quality and distance to market. Siberia, for example, is well endowed in timber and fossil fuels, but the distance to the market raises costs tremendously, so that it may not be economically feasible to exploit the corresponding endowments.

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