Fiscal Federalism in Russia: Rules versus Electoral Politics

This paper examines the determinants of financial flows between the federal government and regional authorities in Russia. The main question is to what extent intergovernmental transfers correspond to the ‘ideal pattern’ – equalisation of the abilities of the regions to provide public goods – and to what extent, if at all, they reflect the influence of federal–regional political discourse (asymmetrical federalism). The main finding is that actual net transfers since 1994, although quite close to the ‘ideal patterns’, depended also on the results of the parliamentary (1993, 1995, 1999) and presidential (1996, 2000) elections and on the relations of the regions with the federal centre. The more votes cast for pro-central government parties in parliamentary elections and for Yeltsin in the 1996 presidential elections and the lower the tensions with Moscow after the elections, the more favourable was the fiscal balance for the region with the federal centre. The result is very robust when using different measures of fiscal capacity (index of tax potential) and costs of providing public goods (budgetary expenditure adjustment index). Comparative Economic Studies (2004) 46, 515–541. doi:10.1057/palgrave.ces.8100049