Question

How russian federal government collect revenue from regions?

Answer 1

1. Introduction
Fiscal decentralization in Russia has been an important dimension of reforms since 1992. The
issue has received a lot of attention recently in academic literature (Lavrov, 1995; Le Houerou, 1995;
McLure at al, 1995; Treisman, 1998a; Wallich, 1994). As a rule these studies have been focused at three
aspects of evolving Russian federalism: delegation of specific revenue and expenditure assignments to
regional governments, relationship between federal and regional budgets through various types of explicit
and implicit transfers, and cross-regional budget equalization.
The main purpose of this paper is to look at one more aspect of the decentralization process,
which relates to inter-government fiscal relations within the regions. The paper focuses on two elements
of such process. The first reflects overall trends in allocation of fiscal resources within regional fiscal
systems, primarily between regional and municipal levels of the government. We review both channels of
fiscal allocation within regions -- tax sharing and local transfer schemes. The second element relates to
potential impact of various decentralization patterns on regional economic performance, such as
economic growth and budget deficit. We use the data on the structure of 89 Russian consolidated regional
budgets in 1992-96 to determine basic statistical characteristics of the decentralization process over the
period and to provide correlation and regression analysis of links between decentralization, regional
indicators of social and industrial structure, and economic performance.
Section 2 provides a brief description of the data. Section 3 presents an analytical framework used
for developing a statistical model. Section 4 reviews trends in the distribution of revenue and expenditure
assignments between the federal, regional and municipal governments. Section 5 presents a more detailed
analysis of fiscal decentralization in Russian regions through the examination of trends in local
governments’ shares in main types of consolidated regional budget revenues and expenditures. In Section
6, we suggest simple indicators of fiscal decentralization and subordination at the regional level and
conduct their statistical analysis. Finally, in Section 7 we run a panel-data regression analysis of potential
determinants of the fiscal decentralization process. We also explore relationships between these indicators
and regional economic performance. Section 8 brings main conclusions.
2. Data
This paper was inspired by the work of Lavrov (1996a), for which a special database on the
structure of the Russian regional budgets for 1992-95 was collected1
. Dr. Alexei Lavrov also shared with
us the database, which derives from the standard reporting forms filed by regions with the federal
Ministry of Finance. He also provided additional budget data for 1996. The database contains data on
consolidated budgets for each level of subnational governments (regions, cities of regional status, rayons,
cities of rayon status, rural municipalities) for all 89 regions. In a sense we had access to quite a unique
data set. Systematic analysis of local budgets in Russia and their relationships with higher level budgets is
usually limited by lack of representative data. As a result, the research is based on small samples or case
studies (Freinkman and Titov, 1994; Mitcheneck, 1997a; World Bank, 1998; Zhuravskaya, 1997).
The data reflect actual outcomes of annual budget execution (i.e. it is not just agreed budget
allocation). According to Russian budget accounting standards, the data include both cash and non-cash
components of the actual budget flows, i.e. include budget revenues and expenditures occurred e.g.
through barter or cancellation of mutual debts. Also, as is usual for Russian budget statistics, subnational

1
Some results of this report were also presented in the paper by Kuznetsova, Lavrov and David (1997).

Answer 2

by charging heavy taxes and duty