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Fiscal Decentralization and Soft Budget Constraints

  • Timofeev Andrey

Liberalization policies of transition have led to the mass reduction of enterprise subsidization which prevailed in socialist economies. However, in some sectors of the economy, subsidies associated with price controls remain due to "social" and "political" factors. Moreover in multi-tier governments, subnational levels seem to be more sensitive to these factors because of their proximity to the constituency. Thus decentralization of fiscal resources might interfere with the elimination of re-sidual subsidies. This research establishes a link between fiscal decentralization and the propensity of local governments to subsidize enterprises. The link is tested empirically on a panel of 72 Russian regions over the period 1995 – 1997.

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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 01-12e.

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Length: 49 pages
Date of creation: 18 Apr 2002
Date of revision:
Handle: RePEc:eer:wpalle:01-12e
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