Federalism with a Russian face: regional inequality, administrative capacity and regional budgets in Russia

Abstract

The paper reviews fiscal federalism in Russian practice. Central control over sub-national budgets has tended to increase. In the classic literature on fiscal federalism such centralisation is potentially damaging to both static efficiency and growth. The paper reviews the propositions in that literature and the assumptions made in it, and notes that weak administrative capacity at sub-regional level, weak electoral competition and extreme unevenness of economic development across regions may provide grounds for greater central control than is treated as desirable in the established literature. The patterns of budgetary transfers from national to regional level are analysed and conclusions drawn about the effectiveness of the evolving fiscal-federal system in Russia.

The Russian Regional Convergence Process

“…A number of authors (e.g., Hanson, 2006;Lugovoi et al, 2007;Zubarevich, 2005) claim that when comparing the per capita GRP or, equally, studying the process of convergence one has to take into account rather large regional differences in price level. Therefore, in addition, to the GRP corrected for the price changes over time using the GRP deflator, we considered GRP corrected also for the price differences across space using the purchasing power parity (PPP) factors computed by Granberg and Zaitseva (2002a).…”

“…Moreover, hoping that without federal intervention the poorest regions will escape poverty traps is rather unrealistic. The opportunities for development of these regions are severely limited by their relatively small tax base that is unlikely to be sufficient for provision of an acceptable minimum of health, education, and local public goods (Hanson, 2006). On the other hand, supporting poor regions at the expense of economically developed regions may weaken stimulus for development of the latter.…”

Incentive Effects of Fiscal Equalization: Has Russian Style Improved?

“…The Russian inter-governmental finance reforms in the early 2000s have been described in detail, among others, in Kadochnikov et al (2008), Martinez-Vazquez et al (2006), as well as Martinez-Vazquez and Timofeev (2008), Thornton and Nagy (2006), and Hanson (2006). Therefore, it may suffice here to summarize major points of interest.…”

The Russian Regional Convergence Process: Where Does It Go?

“…The autonomous districts (okrugs) were excluded from the analysis, since, firstly, they form a part of the corresponding oblasts and, secondly, the GRP figures for them are available only starting from 2001. Therefore, our sample includes 76 regions over the period 1998-2006. A number of authors (e.g., Hanson, 2006;Lugovoi et al, 2007;Zubarevich, 2005) claim that when comparing the per capita GRP or, equally, studying the process of convergence one has to take into account rather large regional differences in price level. Therefore, in addition, to the GRP corrected for the price changes over time using the GRP deflator, we considered GRP corrected also for the price differences across space using the purchasing power parity (PPP) factors computed by Granberg and Zaitseva (2002a).…”