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Decentralization in regional fiscal systems in Russia - trends and links to economic performance

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  • Freinkman, Lev
  • Yossifov, Plamen

Abstract

To shed light on decentralization in Russia, the authors examine intergovernmental fiscal relations within regions. To analyze trends, they review channels of fiscal allocation within regions - tax sharing and local transfer schemes. To evaluate the potential impact of various fiscal decentralization patterns on regional economic performance (including growth and the budget deficit), the authors study data on the structure of 89 Russian consolidated regional budgets for 1992-96. They find that local governments'relative share of Russia's consolidated budget, although substantive (roughly a quarter of the total budget), did not expand after 1994. The federal government's relative role in financing public goods and services declined as the relative role of local governments increased substantially. Local governments collected more revenues in 1996 (6.4 percent of GDP) and spent more than regional governments. They also substantially increased social financing (including health, education, and social protection). Russia made no progress toward a more transparent system for tax assignments. The average level of expenditure decentralization is similar for ethnically Russian regions and national republics and"okrugs"but revenue arrangements differ greatly."True"decentralization has taken place in"oblasts"and"krais"where local authorities are provided with a bigger share of sub-national tax revenues. A redistribution model applies in republics and autonomous okrugs, where greater local outlays have been financed through larger transfers from regional governments. Regions near each other tend to have similar budget arrangements - the result of intensive interactions between neighbors and probably supported by the activities of regional associations. The size of a region's territory does not influence decentralization outcomes. Fiscal decentralization seems positively related to the share of education spending in regional budgets. And regions with more decentralized finances tend to experience less economic decline. But budget control is weaker in more decentralized regions. Instability and lack of transparency in intergovernmental fiscal relations provide sub-national governments little incentive for responsible fiscal policy. Further decentralization without greater transparency could bring greater debt and deficits.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2100.

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Date of creation: 30 Apr 1999
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Handle: RePEc:wbk:wbrwps:2100

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Keywords: Urban Economics; Public Sector Economics&Finance; Public&Municipal Finance; Banks&Banking Reform; Municipal Financial Management; Municipal Financial Management; Public&Municipal Finance; National Governance; Public Sector Economics&Finance; Banks&Banking Reform;

References

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  1. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
  2. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
  3. Zhang, Tao & Zou, Heng-fu, 2001. "The growth impact of intersectoral and intergovernmental allocation of public expenditure: With applications to China and India," China Economic Review, Elsevier, Elsevier, vol. 12(1), pages 58-81.
  4. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(4), pages 43-64, Fall.
  5. Wildasin, David E., 1998. "Fiscal aspect of evolving federations : issues for policy and research," Policy Research Working Paper Series 1884, The World Bank.
  6. F. Fornasari & Steve B. Webb & Heng-Fu Zou, 1998. "Decentralized Spending and Central Government Deficits: International Evidence," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 508, China Economics and Management Academy, Central University of Finance and Economics.
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Citations

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Cited by:
  1. Libman, Alexander, 2008. "Endogenous (De)Centralization and the Russian Federalism," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 9(1), pages 23-57.
  2. Irina Dolinskaya & Irina Tytell, 2002. "Transition and Regional Inequality in Russia," IMF Working Papers, International Monetary Fund 02/169, International Monetary Fund.
  3. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
    [ENDOGENOUS BOUNDARIES AND DISTRIBUTION O
    ," MPRA Paper 16473, University Library of Munich, Germany.
  4. Raj M. Desai & Lev M. Freinkman & Itzhak Goldberg, 2003. "Fiscal federalism and regional growth : evidence from the Russian Federation in the 1990s," Policy Research Working Paper Series 3138, The World Bank.
  5. Justina AV Fischer & Antonio Rodriguez-Andrés, 2008. "Political institutions and suicide: A regional analysis of Switzerland," TWI Research Paper Series, Thurgauer Wirtschaftsinstitut, Universität Konstanz 33, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  6. Martha de Melo & Gur Ofer & Plamen Yossifov, 2003. "Transition in Regional Capitals along the Volga," Public Economics, EconWPA 0302010, EconWPA.
  7. Gil, Carlos & Ezcurra, Roberto & Pascual, Padro & Rapun, Manuel, 2002. "Decentralization and regional economic disparities," ERSA conference papers ersa02p306, European Regional Science Association.
  8. Roy Bahl & Bayar Tumennasan, 2002. "How Should Revenues From Natural Resources Be Shared?," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0214, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  9. Freinkman, Lev & Plekhanov, Alexander, 2005. "What determines the extent of fiscal decentralization ? The Russian paradox," Policy Research Working Paper Series 3710, The World Bank.
  10. Hehui Jin & Yingyi Qian & Barry Weingast, 1999. "Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style," Working Papers, Stanford University, Department of Economics 99013, Stanford University, Department of Economics.
  11. Libman, Alexander, 2008. "Federalism and regionalism in transition countries: A survey," MPRA Paper 29196, University Library of Munich, Germany.
  12. Roy Bahl, 1999. "Intergovernmental Fiscal Relations in Leningrad Region," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper9902, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  13. Violeta Vulovic, 2010. "The effect of sub-national borrowing control on fiscal sustainability: How to regulate?," Working Papers 2010/36, Institut d'Economia de Barcelona (IEB).

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