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An Empirical Analysis of Russian Regions’ Debt Sustainability

Author

Listed:
  • Sergey Evgenievich Barykin

    (Graduate School of Service and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 St. Petersburg, Russia)

  • Alexey Aleksandrovich Mikheev

    (Moscow State Institute of International Relations (University), Ministry of Foreign Affairs of the Russian Federation, 119454 Moscow, Russia)

  • Elena Grigorievna Kiseleva

    (Graduate School of Industrial Management, Peter the Great St. Petersburg Polytechnic University, 195251 St. Petersburg, Russia)

  • Yuriy Evgenievich Putikhin

    (Department of Management, Financial University under the Government of the Russian Federation, 124167 Moscow, Russia)

  • Natalia Sergeevna Alekseeva

    (Graduate School of Industrial Management, Peter the Great St. Petersburg Polytechnic University, 195251 St. Petersburg, Russia)

  • Alexey Mikhaylov

    (Department of Banking and Financial Markets, Financial University under the Government of the Russian Federation, 124167 Moscow, Russia)

Abstract

This paper investigates the impact of the moderate growth of government borrowing on debt sustainability in 11 Russian regions over about 10 years, starting in 2010. The current study aims to assess the debt sustainability of the Russian region’s budget by determining Euclidean distance budget constraints and cluster analysis. This study is based on the methodology of hierarchical cluster analysis, which makes it possible to isolate regions of accumulation of objects from the aggregate data and combine them into homogeneous segments. The central hypothesis of this study is that by using this method, it is possible to increase the accuracy of the values that limit budget constraints in a region’s financial system. This study, using open data from the Federal State Statistics Service, is based on a database of statistical, financial, and economic indicators of the Russian economy. The calculations include about 45 macroeconomic indicators, which reflect the ratios of socio-economic development of the region’s financial system. The methodology described in the paper for assessing the debt sustainability of budget policy proves the need to calculate six indicators and determine the debt limits for the regions of each cluster. It finds a need to reduce the high debt burden of 46% of the regions belonging to the Northwestern Federal District. Confidence intervals for the debt limit suggest that the negative growth effect of high debt may start from levels of around 5% of the debt-to-GDP ratio and about 43% of the debt-to-revenue ratio. The results indicate that regions with a high level of debt sustainability include St. Petersburg city, the Leningrad region, and the Kaliningrad region. From a state debt policy perspective, the results provide additional arguments for debt reduction for the Republic of Komi, the Republic of Karelia, the Arkhangelsk region, and the Pskov region. The general conclusion of the study boils down to the need to reduce the debt burden of the budgets of some regions of the SFZO, as well as to the need to change the upper limits of debt, which are equally set for all regions by the Budget Code of the Russian Federation, to differentiated values of public domestic debt, taking into account the results obtained in the study.

Suggested Citation

  • Sergey Evgenievich Barykin & Alexey Aleksandrovich Mikheev & Elena Grigorievna Kiseleva & Yuriy Evgenievich Putikhin & Natalia Sergeevna Alekseeva & Alexey Mikhaylov, 2022. "An Empirical Analysis of Russian Regions’ Debt Sustainability," Economies, MDPI, vol. 10(5), pages 1-16, May.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:5:p:106-:d:807271
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    References listed on IDEAS

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    1. Shantanu Ghosh & Tarak Nath Sahu, 2021. "Financial inclusion and economic status of the states of India: An empirical evidence," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 50(2), July.
    2. Nobuo Akai & Yukihiro Nishimura & Masayo Sakata, 2007. "Complementarity, fiscal decentralization and economic growth," Economics of Governance, Springer, vol. 8(4), pages 339-362, September.
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    Cited by:

    1. Francisco Molins & Fatmanur Sahin & Miguel Ángel Serrano, 2022. "The Genetics of Risk Aversion: A Systematic Review," IJERPH, MDPI, vol. 19(21), pages 1-22, November.

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