Fiscal Federalism and Regional Growth: Evidence from the Russian Federation in the 1990s

Abstract

Sub-national fiscal autonomy-the basis for fiscal federalism in modern federations-is meant to serve two roles. First, local control over revenue collection is meant to provide a check on the capacity of central authorities to tax arbitrarily local capital. Second, retention of taxes raised locally is meant to establish incentives for sub-national governmental authorities to foster endemic economic growth as a way of promoting local tax bases. In the Russian Federation, however, fiscally autonomous regions have often resisted market-oriented reforms, the enactment of rule protecting private property, and the dismantling of price controls and barriers to trade. This paper finds statistical evidence in support of the hypothesis that fiscal incentives of the Russian regions represent an important determinant of regional economic performance. Moreover, it seeks to understand the conditions under which fiscal autonomy prompts regional growth and recovery, and the conditions under which it has adverse economic effects. The paper argues that the presence of "unearned" income streams-particularly in the form of revenues from natural resource production or from budgetary transfers from the central government-has turned regions dependent on these income sources into "rentier" regions. As such, governments in these regions have used local control over revenues and expenditures to shelter certain firms (natural resource producers or loss-making enterprises) from market forces. Using new fiscal data from 80 Russian regions during the period 1996-1999, we test this central hypothesis in both single-and simultaneous-equation specifications. Our results indicate that tax retention (as a proxy for fiscal autonomy) has a positive effect on the cumulative output recovery of regions since the break-up of the Soviet Union. We also find, however, that this effect decreases as rentable income streams to regions increase.1

The Impact of Climate Change on Regional Government Expenditures: Evidence from Russia

“…The evolution of Russia's fiscal federalist arrangements (i.e. how fiscal rights and responsibilities are divided between levels of government) has been actively researched and documented in numerous studies including De Silva et al (2009), Desai et al (2003), Solanko and Tekoniemi (2005) and Zhuravskaya (2010). Four broad issues characterize Russian fiscal federalism.…”

Dampak Dana Dekonsentrasi Kementerian Pertanian dan Pengeluaran Daerah pada Sektor Pertanian Terhadap Kinerja Pertanian Daerah

“…Berbagai penelitian menunjukkan hubungan negatif, sebagian lagi menunjukkan hubungan yang tidak nyata, dan beberapa yang lain, menunjukkan hubungan positif. Hasil penelitian yang menunjukkan dampak positif desentralisasi fiskal terhadap pertumbuhan ekonomi (Lin and Liu, 2000;Desai et al, 2003;Zhang and Zou 2001;Akai and Sakata, 2002;Ismail et al, 2004;Iimi, 2005;Huther and Shah, 1998;Bjornestad, 2009;dan Ermas e al., 2010). Penelitian yang menganalisis dampak desentralisasi terhadap pertumbuhan ekonomi menunjukkan dampak negatif, antara lain ditunjukkan oleh Davoodi and Zou, 1998, sementara penelitian lain menunjukkan pengaruh yang tidak signifikan (Wolter and Phillips, 1998;Xie et al, 1999).…”

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

“…Transfers support current spending of sub-national budgets; they neither stimulate regions and municipalities to curb wasteful spending nor contribute to their capacity to raise more own tax revenue in future; the transfers do somewhat reduce inter-regional differences in per capita budget revenue, but not by much, and those differences have continued to grow anyway. Using budgetary data for 1996-99 and trying to account for differences across regions in industrial output recovery between 1990 and the late 1990s, Desai et al (2003) produce evidence that, across Russian regions, higher rates of retention of tax revenue have assisted recovery, other things equal, but that this effect is weakened as a region's reliance on either natural resource extraction or federal transfers increases.…”