Russia’s Fiscal Gap

Publication date
Thursday, 07.11.2013

Eugene Goryunov, Maria Kazakova, Laurence J. Kotlikoff, Arseny Mamedov, Kristina Nesterova, Vladimir Nazarov, Elena Grishina,Pavel Trunin, Alexey Shpenev

NBER, Working Paper 19608


Every country faces what economists call an intertemporal (across time) budget constraint, which requires that its government’s future expenditures, including the servicing of its outstanding official debt, be covered by its government’s future receipts when measured in present value. The difference between the present value of a country’s future expenditures and its future receipts is called its fiscal gap.

This study calculates Russia’s fiscal gap relying wherever possible on projections by Russian government agencies. All data and methods used in the analysis are posted on the Gaidar Institute website at

Our findings are disturbing. Russia has a very major fiscal gap totaling 890 trillion rubles or $28 trillion. This 2013 present value long-term budget shortfall is 8.4 percent of the present value of Russia’s projected GDP. Consequently, eliminating Russia’s fiscal gap on a smooth basis requires fiscal tightening in all future years by 8.4 percent of each future year’s projected GDP.

One means of doing this is to immediately and permanently raise all Russian taxes by 29 percent. Another way is to immediately and permanently cut all spending, apart from servicing outstanding debt, by 22.4 percent. A third way to eliminate the gap and achieve fiscal sustainability entails using both tax increases and spending cuts, each of which eliminate half the fiscal gap. In this case, the requisite immediate and permanent tax hike is 14.5 percent, and the requisite immediate and permanent spending cut is 11.2 percent.

How can a country with vast energy resources and financial assets that exceed its official debt still have very major fiscal problems? The answer is that the Russia’s energy resources are finite, whereas its expenditure needs are not. In addition, Russia is aging and facing massive obligations from its pension system and other age-related expenditure programs.



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