Drivers of Fiscal Resources at the Local Level in Russia: Role of Institutions Reflected in Regional Debt

Abstract

The paper seeks to clarify the consequences of fiscal institutions and centralization of intergovernmental relations in Russia related to regional debt sustainability and intraregional fiscal decentralization. The consolidated regional debt is considered to be the indicator that incorporates various features of institutional framework of the Russian budgetary system, while local fiscal decentralization reflects the number of fiscal resources at the local level. The relationship between governmental debt sustainability and fiscal decentralization is known to be a complex phenomenon. Yet under the analytical framework of this research, I show that the decrease of intraregional fiscal decentralization in Russia is attributable to the growing regional debt. Essentially, I conclude that centralization of intergovernmental relations in Russia leaves little room for maneuver for regional authorities and lead both to growing risk of debt sustainability and shrinking number of fiscal resources at the local level. It is found that more prosperous Russian regions exhibit higher fiscal decentralization. This finding reinforces the established theory. However, in the rich northern regions of Russia dependent on oil, gas and other commodities the decentralization is relatively high, so some theoretical predictions seem to be misleading. Those unobserved factors remain to be investigated. Further research agenda consists of conducting calculations based not just on pooled but panel data. It will help considering characteristics of each region. Furthermore, the results need to be reassessed for different indicators of fiscal decentralization.