Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style
Posted: 26 Jul 2001
Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government's own revenues is almost entirely offset by changes in shared revenues. This leads to governmental over-regulation of private businesses. It is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision. The Russian federalism is compared to the Chinese federalism, where fiscal incentives reputedly are stronger in many provinces.
Keywords: Federalism; Russia; Local government; Transition
JEL Classification: H11, H41, H71, O57, P35
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