The fiscal tools for regional support in the Russian Federation: the lines of improvement

The fiscal tools for regional support in the Russian Federation: the lines of improvement The Russian Federation features the significant socio-economic disparities among regions. That is why the federal support of regions in forms of different types of grants plays a very important role. The federal grants are allocated among regions on various purposes. For example, the Federal Fund for Financial Support of Regions (FFFSR) is used as an equalization tool. Federal government distribute grants in the form of "subsidy" which are used for co-financing regional expenditure functions in order to encourage the optimal provision of public services or to stimulate transformations in regional economy. The analysis of federal grants distribution practice shows the keen necessity of its improvement. In the area of the FFFSR usage it is possible to identify the following problems: a lot of regions (about 30 in 2014) have estimated fiscal capacity index after the FFFSR allocation that is less than the minimum level calculated in accordance with the Budget code and the methodology approved by Government Resolution No. 670 of November 22, 2004; the feature of the FFFSR contribution calculation when its amount in the following year cannot be less than the estimated amount fixed for a region on the planning period and the approach for stimulating regions with large increase in wage fund and profit tax (at the stage of calculating revenue capacity index for regions) distort the order of the FFFSR allocation on the fixed transparent need criteria. In the area of the "subsidies" usage it is possible to identify the following problems: a big number of narrow-targeted subsidies (more than 80 subsidies are allocated in 2014) which sometimes meet the same needs; late grants transferring from the federal level to regions during the fiscal year worsens the conditions for expenditure planning and reduces the effectiveness of subsidies usage on the side of regions; the lack of accountability for effective use of subsidies and meeting planned targets on the regional level. The problems of the FFFSR and subsidies allocation mentioned above are to be solved by implementing State programme «Measures for Effective and Responsible Management of Regional and Municipal Finances and Budget Stability of the Russian Regions» and by correcting the Regulations of projecting, provision and allocation of subsidies from the federal budget to the budgets of constituent entities of the Russian Federation (Government Resolution No. 392 of May 26, 2008).