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Market Discipline vs Budget Support: The Dilemma of the Effectiveness of Sub-federal Bonds in Russia

Author

Listed:
  • Samir Yu. Tsiku

    (Financial University under the Government of the Russian Federation, Moscow, Russian Federation)

  • Sergey A. Perekhod

    (Financial University under the Government of the Russian Federation, Moscow, Russian Federation)

Abstract

Over the past decade, Russia has witnessed a sharp shift in the structure of sub-federal borrowing. The study aims to identify the contradiction between market discipline (sub-federal bonds) and budget support (budget loans) and assess their debt efficiency. Methods: Based on Russian Ministry of Finance data for 2014–2025, a modified market index (Rt*) to quantify the shift toward centralized financing. A proprietary metric was developed to measure how changes in the volume of specific debt instruments impact debt service costs. Results: The share of budget loans in regional debt increased from 7.1% to 79.3%, while the share of market instruments fell from 65.8% to 18.6%. The market index Rt* dropped from 0.314 to 0.091, confirming the weakening of market discipline. The efficiency comparison showed that only 5 out of 36 regions that used bonds achieved higher efficiency with them than with budget loans. These regions increased their bond volumes and resorted less actively to budget loans (2.2% of GRP vs 3.5%). Conclusions: The wide availability of budget loans creates soft budget constraints, suppressing the motivation for market borrowing and reducing its efficiency. Regions oriented towards bonds demonstrate greater financial independence.

Suggested Citation

  • Samir Yu. Tsiku & Sergey A. Perekhod, 2026. "Market Discipline vs Budget Support: The Dilemma of the Effectiveness of Sub-federal Bonds in Russia," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 2, pages 64-81, April.
    • Handle: RePEc:fru:finjrn:260204:p:64-81
    DOI: 10.31107/2075-1990-2026-2-64-81
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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