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Subnational Budget Rules: Foreign and Russian Experience

Author

Listed:
  • Kudrin, Alexey L.

    (St. Petersburg State University, Council of the Center for Strategic Research)

  • Deryugin, Alexander N.

    () (Presidential Academy of National Economy and Public Administration)

Abstract

The article discusses the rules and restrictions for subnational budgets in Russia and some federative countries, as well as the current level of debt burden of the respective public authority. According to the authors, in the world practice, modern budget rules for the regions are characterized by flexible built-in mechanisms that allow them to adapt quickly to external and internal shocks without making changes in their basic design. This ensures not only fiscal sustainability of public finances at the regional level, but also stability of budget legislation and its law enforcement practice. The authors analyze the arguments pro and contra the application of conditional budget rules, that is, the features of binding certain restrictions of budget parameters (volume of expenditures, regional budget deficit, public debt) to such criteria as the level of transfer dependence, the amount of accumulated debt level, the dynamics of GRP growth rates etc. The analysis of international and Russian practice has led to the conclusion that budgetary rules should not be differentiated based on the level of transfer dependence, that there is a need for tighter restrictions for regions with high debt burden, and that budget rules should be given sufficient flexibility. In order to ensure effective application of new budget rules, the authors propose limiting the practice of making decisions at the federal level that directly affect the expenditure obligations of the regions, and introducing a system of built-in mechanisms to increase fiscal discipline, including encouraging regions that implement responsible fiscal policies and applying sanctions for violating budget rules.

Suggested Citation

  • Kudrin, Alexey L. & Deryugin, Alexander N., 2018. "Subnational Budget Rules: Foreign and Russian Experience," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 8-35, February.
  • Handle: RePEc:rnp:ecopol:ep1801
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    References listed on IDEAS

    as
    1. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
    2. S. Vlasov & E. Deryugina & Yu. Vlasova., 2013. "The Analysis of Russia’s Fiscal Sustainability in the Short- and Long Run," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 3.
    3. Douglas Sutherland & Robert W. R. Price & Isabelle Joumard, 2005. "Fiscal Rules for Sub-central Governments: Design and Impact," OECD Economics Department Working Papers 465, OECD Publishing.
    4. Nina T Budina & Andrea Schaechter & Anke Weber & Tidiane Kinda, 2012. "Fiscal Rules in Response to the Crisis; Toward the "Next-Generation" Rules: A New Dataset," IMF Working Papers 12/187, International Monetary Fund.
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    More about this item

    Keywords

    budget rules; budget balance; regional budgets; public debt; deficit; transfer dependency.;

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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