Determinants of decentralisation within Russian regions

Determinants of decentralisation within Russian regions

Exploring regional characteristics in explaining the extent of decentralisation in Russia

What are the explanations for variation in the extent of decentralisation across Russia? This research attempts to empirically explore the extent and variation of fiscal decentralization in the sub-national sector in Russia and to explain this variation by way of regional characteristics. The paper:

  • documents significant variation in the relative roles of regional and local governments both across regions and over time
  • examines whether the presence of normative conditions in Russian regions is associated with greater decentralization, in order to judge whether the observed intra-regional decentralization is likely to enhance welfare
  • attempts to identify other characteristics of Russian regions that can explain the observed differences in regional–local decentralization across the country

A historical overview of the trends in intergovernmental fiscal relations during the Russian transition is provided and the literature on the potential determinants of fiscal decentralization is then reviewed. Specific testable hypotheses are then formulated concerning the determinants of the observed decentralization and the findings of this econometric analysis are presented.

The paper concludes that:

  • both the aggregate figures and cross regional descriptive statistics show a decentralization trend after 1992, and conversely, centralization after 1996
  • the wide variations among regions in the extent of regional–local decentralization remained throughout the period
  • the initial split of expenditures between the levels of government remained a significant determinant of decentralization of expenditures until 1996
  • the initial fiscal imbalance in a region seem to have lead to off-loading expenditure responsibilities to the local level
  • the degree of intra-regional decentralization is inversely related to the extent of heterogeneity of the region ’s population
  • rather then tailoring public goods to heterogeneous preferences, regional authorities seem to address diversity with a uniform level of public provision
  • regional-local decentralization seems to be responsive to federal grants, federal transfers tend to “stick” at the regional level thus leading to higher centralization of the regional-local sector
  • the proportion of federal grants passed on to localities is less than the proportion of the regional tax base assigned to localities

The implications from these findings include that:

  • Russian regional authorities, it can be argued, pursue political goals, such as social cohesion of large and diverse population at the expense of economic gains from decentralization
  • regional governments can make economically efficient decisions if they face proper incentives
  • the federal government might have to introduce a requirement that a certain percentage of federal transfers has to be passed on to localities similar to the requirement for sharing revenue from assigned federal taxes
  • regions that choose to decentralize might be the ones that have little to gain from the decentralized provision of public goods
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