This study explores disparity in regional development in Russia and in Canada and role of geography in their development. In the first chapter analysis of the role of geographic, economic, and institutional factors in economic growth over 1996-2004 is presented. Additionally the issue of the interregional spatial interaction is analyzed, which is studied in the framework of the new economic geography. The second chapter devoted to the development of Canadian provinces and analyzes factors of provincial differences along with factors of migration in Canada over the period of 1991-2001.

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This paper compares the implications of tax system and public borrowing limit asymmetries for the welfare cost of business cycles and interregional consumption risk sharing in a two-region fiscal union. We identify the welfare-improving and risk-sharing-improving designs of the regional tax systems and borrowing limits. We find that the choice of public borrowing limits is more consequential than is the choice of a tax regime for union welfare. It also serves as an argument for the harmonization of fiscal policies adopted in the fiscal union, as it would internalize fiscal externalities and improve consumption risk-sharing across the union regions. The key parameter determining the merits of alternative regional tax systems and possible limits to public borrowing in the fiscal union is the productivity of public good. Other aspects of the economy, such as the type of technology process, or the nature of the productivity shock do not affect the union public finance system design significantly. Extensive simulations suggest that if the productivity of public capital lies within the range of plausible empirical estimates, allowing both regions to have flexible borrowing limits and to choose whatever tax system they prefer will reduce the overall welfare costs of business fluctuations. However, for very low productivity of public capital, the welfare-improving regional public finance reforms that would prohibit public borrowing and tax labor income can produce limited benefits.

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