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Fiscal Centralization and Decentralization in Russia and China

Author

Listed:
  • Elliott Parker

    () (Department of Economics, University of Nevada, Reno)

  • Judith Thornton

    () (Department of Economics, University of Washington)

Abstract

In this paper we review the fiscal evolution of China and Russia, asking how the process of creating a separate, tax-financed public sector in the two countries differed. We observe that the size of China's budget sector was consistently smaller than in Russia and that budget decentralization was consistently greater. We see both pros and cons in China's decentralization. Local governments that were allowed to keep marginal increases in local tax revenue had incentives to pursue growth-supporting policies, including support for foreign investment and export-oriented production. However, in the absence of financial markets, there were barriers to investment outside the local region, resulting in inefficient use of capital and protectionism. Fiscal deficits and rapid expansion of credit have threatened stability in both countries, but China has proved more successful than Russia in managing macroeconomic policies. Finally, we argue that Russia's status as a petro-state makes management of the public sector particularly difficult. In Russia, recentralization has been associated with expansion of state ownership of enterprises and production by territorial governments, state ministries, state banks, and the natural monopolies.

Suggested Citation

  • Elliott Parker & Judith Thornton, 2006. "Fiscal Centralization and Decentralization in Russia and China," Working Papers 06-013, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
  • Handle: RePEc:unr:wpaper:06-013
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    File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP06013.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. ROZELLE, Scott & SWINNEN, Johan F.M., 2009. "Why did the communist party reform in China, but not in the Soviet Union? The political economy of agricultural transition," China Economic Review, Elsevier, vol. 20(2), pages 275-287, June.
    2. Barbara Krug & Alexander Libman, 2015. "Commitment to local autonomy in non-democracies: Russia and China compared," Constitutional Political Economy, Springer, vol. 26(2), pages 221-245, June.

    More about this item

    Keywords

    Fiscal decentralization; Russia; China; regional growth;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • P35 - Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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