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Regional Equalization: Are there Incentives to Development?

Listed author(s):
  • Deryugin, Alexander N.


    (Laboratory for Fiscal Policy Studies of the Russian Presidential Academy of National Economy and Public Administration)

The work aims to assess how the current methodology of distribution of equalization transfers between Russian regions preserves incentives for the development of regional economies. To answer this question the term “stimulus” is clarified and proposed indicator which allows to judge not only about the presence or absence of an incentives to develop the regional economy, but also allows to quantify its assessment. This indicator is a degree of substitution of increase of tax and non-tax revenues by reduction of equalization grants, which shows how the value of equalization transfers changes with different tax capacity of the region. The hypothesis of the presence of a sufficient amount of incentives, which, at first glance, contradicts to popular belief about its absence, is based on the list of elements and features of the existing methodology of distribution of equalization transfers between Russian regions, which contribute to the preservation of such incentives. This hypothesis is confirmed by the results of calculations. Based on calculations of the effect of changes in tax capacity of regions on the value of these transfers for the period 2006–2015 it is shown that for the most of regions the level of this compensation is less than half, which means there are significant incentives for regions to develop their economy and revenue base budget. This stimulating effect was different for the regions with the original level of fiscal capacity before to the distribution of equalization grants below or above 0.6: for the latest it is significantly higher. The paper also considers different factors connected with the increase in revenue capacity negatively affecting the net financial effect on the budget of the region.

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Article provided by Russian Presidential Academy of National Economy and Public Administration in its journal Economic Policy.

Volume (Year): 6 (2016)
Issue (Month): (December)
Pages: 170-191

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Handle: RePEc:rnp:ecopol:ep1668
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