Tag: budget balance

Fiscal Decentralization and Budget Discipline in Russian Regions

Authors: Michael Alexeev, Indiana University, Nikolay Avxentyev and Arseniy Mamedov, Russian Academy of National Economy and Public Administration.

We use panel data from the Russian regions for 2005-2013 to estimate the link between intraregional fiscal decentralization and regional budget deficits. Although Russian regions are not as autonomous in their fiscal policies as regions in other federal states such as Switzerland and the US, we obtain rather robust and highly statistically and economically significant results. Most importantly, we show that expenditure decentralization tends to have a positive effect on consolidated regional budget balance, while the weakness of regional tax base (relative to municipal one) is associated with significantly higher deficits. Also, as expected, the dependence of municipal budgets on transfers from the regional government leads to higher deficits of the consolidated regional budget. We conjecture that the deficit-reducing role of expenditure decentralization is due in part to better monitoring by the citizens and more efficient handling of expenditures by officials closer to the place where the funds are spent. Also, it might be easier for the regional government to pre-commit to a given level of expenditures when these expenditures are allocated to municipalities, because most municipalities in Russia appear to have harder budget constraints than the regional government.