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Concept of Vertical Fiscal Imbalance in the Analysis of Fiscal Sustainability at the Regional Level

Author

Listed:
  • Аnna A. Mikhaylova

    (RANEPA, Moscow 119571, Russian Federation)

  • Evgeny N. Timushev

    (Komi Science Center of the Ural Branch of the Russian Academy of Sciences, Syktyvkar 167982, Russian Federation)

Abstract

The paper analyzes the concept and indicator of vertical fiscal imbalance (VFI) and its capability in assessing the creditworthiness (debt sustainability) of Russian regions. It is found that VFI does not replace other indicators of debt and broader fiscal sustainability, but complements them by providing diagnostics of the balance of incoming and outgoing intergovernmental transfers in addition to the balance of expenditures and revenues (budget deficit). Vertical fiscal imbalance has a close inverse pair correlation with the share of own (tax and non-tax) revenues and fiscal capacity, and can therefore reflect creditworthiness (along with the amount of debt and capital expenditures). Technically, it is advisable to carry out an analysis using VFI with a recalculation accounting for subventions. It is concluded that vertical fiscal imbalance is an important element of the methodology of diagnosing fiscal sustainability. Further study of features of the concept, as well as the use of VFI in the analysis and regulation of intergovernmental relations, suggests a promising outlook.

Suggested Citation

  • Аnna A. Mikhaylova & Evgeny N. Timushev, 2021. "Concept of Vertical Fiscal Imbalance in the Analysis of Fiscal Sustainability at the Regional Level," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 98-116, December.
    • Handle: RePEc:fru:finjrn:210605:p:98-116
    DOI: 10.31107/2075-1990-2021-6-98-116
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    References listed on IDEAS

    as
    1. Аnna A. Mikhaylova & Evgeny N. Timushev, 2020. "Creditworthiness of Russian Regions: What Needs to Be Considered," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 69-86, December.
    2. Inaki Aldasoro & Mr. Mike Seiferling, 2014. "Vertical Fiscal Imbalances and the Accumulation of Government Debt," IMF Working Papers 2014/209, International Monetary Fund.
    3. Jia, Junxue & Liu, Yongzheng & Martinez-Vazquez, Jorge & Zhang, Kewei, 2021. "Vertical fiscal imbalance and local fiscal indiscipline: Empirical evidence from China," European Journal of Political Economy, Elsevier, vol. 68(C).
    4. Alexander Deryigin & Irina Filippova & Igor Arlashkin, 2021. "Impact of intraregional tax decentralization on the development of the income base of the regions [Влияние Внутрирегиональной Налоговой Децентрализации На Развитие Доходной Базы Регионов]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 8-33, April.
    5. Ànna Mikhaylova & Evgeny Timushev, 2020. "Russia’s Budgetary System: How Much Sustainable?," HSE Economic Journal, National Research University Higher School of Economics, vol. 24(4), pages 572-597.
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    7. Vladislav Bukharskiy & Alexey Lavrov, 2020. "Hard Budget Constraints: Theoretical Foundations And Problems Of Russian Cities," Public administration issues, Higher School of Economics, issue 1, pages 7-40.
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    More about this item

    Keywords

    fiscal sustainability; dependency on transfer; fiscal capacity; subventions; regional debt; capital expenditures; factor analysis;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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