Fiscal Decentralization in the Russian Federation During the Transition

Intergovernmental fiscal relations may be the most contentious issue in the Russian Federation today. This is the result of the complexity of the problems intertwined with intergovernmental relations. These problems include the recent history of disintegration of the Soviet Union; the war in Chechnya; the ethno-linguistic, religious and historical differences across its vast territory; great variations in the endowment of mineral resources; increasingly large economic and fiscal disparities across regions and local governments; and the spreading sentiment in some regions that they can be better off by seceding from the Federation. It is not an overstatement to say that the survival of the Russian nation itself depends on the establishment of a system of intergovernmental fiscal relations that is functional and appropriate. This document provides an in-depth analysis of the various dimensions of the Russian system of intergovernmental fiscal relations. Chapter I presents an introductory overview. Each subsequent chapter contains the discussion of a particular dimension of fiscal decentralization in the Russian Federation. The assignment of expenditure responsibilities in the Russian Federation is discussed and analyzed in Chapter II. Next, the assignment of tax revenues and other revenue issues, including tax administration and financial administration are considered in Chapter III. Chapter IV presents the use of intergovernmental transfers in the Russian system. Chapter V addresses the topics of subnational borrowing and emergency fiscal controls. Finally, Chapter VI reviews the main issues in policy formulation faced by the Russian government in their efforts to reform their system of intergovernmental fiscal relations.