Fiscal Federalism and Regional Growth : Evidence from the Russian Federation in the 1990s
Subnational fiscal autonomy-the basis for fiscal federalism in modern federations-is meant to serve two roles. First, local control over revenue collection is meant to provide a check on the capacity of central authorities to tax arbitrarily local...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2003/09/2542334/fiscal-federalism-regional-growth-evidence-russian-federation-1990s http://hdl.handle.net/10986/18059 |
| Summary: | Subnational fiscal autonomy-the basis
for fiscal federalism in modern federations-is meant to
serve two roles. First, local control over revenue
collection is meant to provide a check on the capacity of
central authorities to tax arbitrarily local capital.
Second, retention of taxes raised locally is meant to
establish incentives for subnational governmental
authorities to foster endemic economic growth as a way of
promoting local tax bases. But in the Russian Federation,
fiscally autonomous regions have often resisted
market-oriented reforms, the enactment of rules protecting
private property, and the dismantling of price controls and
barriers to trade. The authors find statistical evidence in
support of the hypothesis that fiscal incentives of the
Russian regions represent an important determinant of
regional economic performance. The authors also seek to
understand the conditions under which fiscal autonomy
prompts regional growth and recovery, and the conditions
under which it has adverse economic effects. They argue that
the presence of "unearned" income
streams-particularly in the form of revenues from natural
resource production or from budgetary transfers from the
central government-has turned regions dependent on these
income sources into "rentier" regions. As such,
governments in these regions have used local control over
revenues and expenditures to shelter certain firms (natural
resource producers or loss-making enterprises) from market
forces. Using new fiscal data from 80 Russian regions from
1996-99, the authors test this central hypothesis in both
single- and simultaneous-equation specifications. Their
results indicate that tax retention (as a proxy for fiscal
autonomy) has a positive effect on the cumulative output
recovery of regions since the breakup of the Soviet Union.
But they also find that this effect decreases as rentable
income streams to regions increase. |
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