Reforming Regional-Local Finance in Russia

Abstract

Reforming Regional and Local Finance in Russia assesses the current state of Russia's regional and local fiscal relations and self-government, and analyzes the related reforms undertaken over the past decade. The analysis is based on the kind of first-hand experience and in-depth knowledge of Russian intergovernmental reforms that only a handful of Western scholars possess. This book complements the earlier WBI title Russia's Transition to a New Federalism (2001), reflecting the shift in Russia's policy reform agenda from an emphasis on federal and regional relations to the regional and local levels.The study uses a framework that integrates all the building blocks of federalism: size and structure of jurisdictions, expenditures, revenues, transfers, and borrowing. It offers reform options based on international practices and normative principles, while also identifying some dangers that may arise in implementing the next round of proposed intergovernmental reforms in Russia. The book will be of particular interest to policymakers, researchers, and teachers.Reforming Regional and Local Finance in Russia was prepared as part of the World Bank Institute's program to train central and local government officials to carry out intergovernmental reforms, and to build a core group of local trainers who can deliver future programs independently. I am pleased to make this volume available to all who are engaged or interested in intergovernmental reforms in Russia as well as in Central Asia and the Caucasus.

Substituting Distribution for Growth: The Political Logic of Intergovernmental Transfers in the Russian Federation

“…Fiscal reforms in 2003 and 2004 defined and harmonized expenditure responsibilities and revenue sources across regions, eliminating special privileges and imposing stricter requirements. These reforms also increased regional fiscal dependence on the center, as regions were forced to remit the bulk of tax revenues to the center before receiving their share back in the form of transfers (Martinez-Vasquez et al (2006)). Political reforms included replacing gubernatorial elections with centralized appointments and strengthening the power and autonomy of federal representatives overseeing the regions (Robertson, 2010).…”

“…22 Vast imbalances in per capita expenditure remained even in highly regulated public goods such as education, health care, and infrastructure investment (Remington, 2011). Critically, the reforms gave regional elites even more control over subregional budget allocations by limiting municipal revenue to transfers from the regions (Martinez-Vasquez et al, 2006). This allowed regional governments to pressure municipalities to turn out the vote for UR and to channel federal funds to where it would strengthen the party the most (Golosov, 2006;Martinez-Vasquez et al, 2006).…”

From Business to Politics: Cross‐Border Inter‐Firm Networks and Policy Spillovers in the EU's Eastern Neighbourhood

“…Still, regulatory changes stemming from external influences at the regional level are possible since regional policymakers have considerable flexibility with regard to business regulations. For instance, there is sufficient evidence in the literature that the business environment in these three countries varies substantially from one region to another in such aspects as the quality of business licensing and ease of business registration, transparency and effectiveness of regional courts, access to finance, regional tax administration and business inspections (Ricka and Schweiger, 2010;Khaleeva et al, 2009;Freinkman and Plekhanov, 2010;Martinez-Vazquez et al, 2006).…”

Fiscal Incentives and Shared Revenue Sources with Differentiated Sharing Rates

“…Zhuravskaya puts changes in those revenues on the left-hand side of equation (1) treating them as transfers; Alexeev and Kurlyandskaya put them on the right-hand side treating them as own revenues. At first glance, it might seem obvious that as the derivation-based revenues are a form of transfer distributed according to a specific formula, that is, in proportion of where the tax is collected (e.g., Martinez-Vazquez, Timofeev, and Boex 2006), changes in those revenues should be treated as changes in transfers, and Zhuravskaya (2000) does the right thing by putting them on the left-hand side of equation (1). However, Alexeev and Kurlyandskaya (2003) put changes in these revenues on the right-hand side of equation (1) claiming that in the particular case they are dealing with this is the right thing to do.…”