Fiscal Federalism in Russia: Soft Budget Constraints of Regional Governments

Publication date
Monday, 06.02.2006

S. Sinelnikov-Murylev, P. Kadochnikov, I. Trounin, S. Chetverikov, M. Vigneault


The study has reviewed the experience of foreign countries in the sphere of implementation of respective measures designed to prevent the emergence of soft budget constraints imposed on subnational authorities in a situation of fiscal decentralization. Also, a number of theoretic simulation models have been built and analyzed that describe the interactions arising between the central government and regional authorities while specific variants of budget policy are being selected. Certain hypotheses concerning the existence of soft budget constraints in the regions of the Russian Federation are empirically tested.

Introduction 5
1. Soft Budget Constraints: Theory, Empirical Analysis, and Practice 9
1.1. Analysis of Theoretical Aspects of the Soft Budget Constraints Problem 10
  1.1.1. Soft Budget Constraints of Enterprises 10
  1.1.2. Soft Budget Constraints of Subnational Governments 24
1.2. Prevention of Soft Budget Constraints of Subnational Authorities in the Situation
of Fiscal Decentralization: Experience of Foreign Countries 64
  1.2.1. United States of America 68
  1.2.2. Canada 80
  1.2.3. The Federative Republic of Germany 86
  1.2.4. Norway 91
  1.2.5. China 94
  1.2.6. Brazil 97
  1.2.7. Argentina 102
  1.2.8. Hungary 105
  1.2.9. Ukraine 109
2. A Theoretic Analysis of Soft Budget Constraints for Regional Governments in Russia 123
2.1. The Prerequisites for the Emergence of Soft Budget Constraints for Subnational Governments
in the Russian Federation 123
2.2. Model of Soft Budget Constraints for Regional Governments in Russia 143
2.3. Models of Interaction between Regional and Federal Governments in the Course
of Making Choice of a Budgetary Policy 163
2.4. Interpretation of Results of Theoretical Analysis of Interaction between Federal and Regional Governments 189
  2.4.1. Main Conclusions from the Analysis of the Theoretical Models 190
  2.4.2. Theoretical Results and the System of Interbudgetary Relations in Russian Federation 194
3. The Empirical Testing of Some Hypotheses Concerning the Soft Budget Constraints
for Subnational Governments 199
3.1. The Main Hypotheses and the Limitations of the Empirical Analysis 199
3.2. Models of the Influence of Accounts
Payable on the Amount of Financial Assistance 205
3.3. Dependence of Regional Budget Expenditures
on their Tax Revenues and Federal
Financial Assistance 212
3.4. Summary Results of the Empirical Analysis 239
Conclusions 241
References 252

The research and the publication were undertaken in the framework of CEPRA (Consortium for Economic Policy, Research and Advice) project funded by the Canadian Agency for International Development (CIDA).

ISBN 5-93255-182-8 
UDC 336.143
BBC 65.261.31 

Agency CIP RSL

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