IDEAS home Printed from https://ideas.repec.org/a/fru/finjrn/260204p64-81.html

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
    as

    Download full text from publisher

    File URL: https://www.finjournal-nifi.ru/images/FILES/Journal/Archive/2026/2/statii/04_2_2026_v18.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.31107/2075-1990-2026-2-64-81?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Acauã Brochado & Sean Dougherty, 2024. "Riding the rollercoaster: Subnational debt in turbulent times," OECD Working Papers on Fiscal Federalism 47, OECD Publishing.
    2. János Kornai & Eric Maskin & Gérard Roland, 2003. "Understanding the Soft Budget Constraint," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1095-1136, December.
    3. Mr. Guiseppe Pisauro, 2001. "Intergovernmental Relations and Fiscal Discipline: Between Commons and Soft Budget Constraints," IMF Working Papers 2001/065, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin & Sergey Chetverikov & Marianne Vigneault, 2006. "Fiscal Federalism in Russia: Soft Budget Constraints of Regional Governments," Published Papers 47, Gaidar Institute for Economic Policy, revised 2012.
    2. Maria EL KHDARI, 2015. "Déterminants des transferts intergouvernementaux : le cas des communes Marocaines," Working Papers 201531, CERDI.
    3. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin (ed.), 2006. "Fiscal Federalism in Russia: Soft Budget Constraints of Regional Governments," Books, Gaidar Institute for Economic Policy, edition 1, number 4, October.
    4. Leanora Alecia Brown & Jorge Martinez-Vazquez, 2015. "International Debt Forgiveness: Who Gets Picked and Its Effect On The Tax Effort Of Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1504, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    5. Emanuel Kohlscheen, 2008. "Debt Bailouts And Constitutions," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 480-492, July.
    6. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
    7. Peter Nunnenkamp & Hannes Öhler, 2012. "Funding, Competition and the Efficiency of NGOs : An Empirical Analysis of Non‐charitable Expenditure of US NGOs Engaged in Foreign Aid," Kyklos, Wiley Blackwell, vol. 65(1), pages 81-110, February.
    8. Jacob Veenstra & Bernard Ommeren, 2017. "Bailout Clauses and the Price of Credit: The Dutch Experience for Housing Corporations," De Economist, Springer, vol. 165(3), pages 295-320, September.
    9. Gianmarco Daniele & Amedeo Piolatto & Willem Sas, 2018. "Who Sent You? Strategic Voting, Transfers and Bailouts in a Federation," Working Papers. Serie AD 2018-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    10. Chen, Zhiyuan & Li, Yong & Zhang, Jie, 2016. "The bank–firm relationship: Helping or grabbing?," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 385-403.
    11. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
    12. Kolecek, Ludek, 2008. "Bankruptcy laws and debt renegotiation," Journal of Financial Stability, Elsevier, vol. 4(1), pages 40-61, April.
    13. Michel Aglietta & Wladimir Andreff & Bastien Drut, 2010. "Floating European football clubs in the stock market," EconomiX Working Papers 2010-24, University of Paris Nanterre, EconomiX.
    14. Hudon, Marek & Périlleux, Anaïs, 2014. "Surplus distribution and characteristics of social enterprises: Evidence from microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 147-157.
    15. Eggleston, Karen & Shen, Yu-Chu, 2011. "Soft budget constraints and ownership: Empirical evidence from US hospitals," Economics Letters, Elsevier, vol. 110(1), pages 7-11, January.
    16. Mehrdad Vahabi, 2025. "Introduction: A Special Issue in Honouring Janos Kornai," Palgrave Studies in the History of Economic Thought, in: The Legacy of Janos Kornai, chapter 0, pages 31-48, Palgrave Macmillan.
    17. Costanza Torricelli & Maria Cesira Urzì Brancati & Luca Mirtoleni, 2014. "The impact of skill and management structure on Serie A Clubs’ performance," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 14107, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    18. Robin Boadway & Jean-Francois Tremblay, 2005. "A Theory of Vertical Fiscal Imbalance," Working Papers 2006-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    19. Dong, Gang Nathan & Gu, Ming & He, Hua, 2020. "Invisible hand and helping hand: Private placement of public equity in China," Journal of Corporate Finance, Elsevier, vol. 61(C).
    20. Xinli Guo, 2025. "Bailouts by Representation: A Minimal TLC Theory with Weighted Consent," Papers 2508.08693, arXiv.org.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fru:finjrn:260204:p:64-81. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gennady Ageev (email available below). General contact details of provider: https://edirc.repec.org/data/frigvru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.