Fiscal Federalism and Incentives in a Russian Region
Posted: 27 Jul 2003
Transfers from a higher-level government budget may affect the incentives of lower-level governments to foster their tax base. If transfers offset completely changes in own budgetary revenues, fiscal incentives are destroyed. Using the data from a Russian region, we cannot reject the hypothesis that transfers offset completely changes in municipal revenues, although the transfers are adjusted with a lag. The estimates suggest that this transfers policy is due in part to short time horizons for regional governments and commitment problems. Budgetary constraints of Russia's regions could have also played a role. Such initial conditions distinguish Russia from Poland and China.
Keywords: Fiscal federalism, Interbudgetary transfers, Incentives of local governments
JEL Classification: H3, H7, P2
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