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Enhancing the structure of fiscal relations in Russia in the long- and middle-term perspectives: analysis of the cause-effect chain between fiscal incentives for local authorities and social-economic conditions of the Federation subjects and municipal est
Project Duration: 2001 -2002

Project Summary:

The project aimed at studying the activities of local authorities in Russia, namely fiscal incentives for them, as the level of small and medium business development in the country depends on the activities of local authorities in the field of administrative control.

The central issue was: why regional authorities provide so weak fiscal incentives to local authorities possessing non-realized potential for development. There are several explanations of the phenomenon:

«Power capture» by business in regions. In many regions, enterprises striving for economic revenue change institutional environment and influence the regional authorities policy.
Mild fiscal restrictions for regions. If a region enjoys mild fiscal restrictions, i.e. federal government supports the region should the revenue unexpectedly fall or expenses grow, regional authorities feel less responsibility for the on-going policy and thus it reduces incentives for regions to implement well-balanced fiscal policy.
Regional authorities fail to ensure their commitment not to expropriate from local authorities. Even if regional authorities are concerned with the economic growth at the local level, they fail to persuade local authorities that there will be no expropriation when the region feels such a need.

Project Output:

Recommendations on improving fiscal relations in the regions were elaborated and three options of federalism development were considered: pessimistic variants — lack of reforms, excessive centralization, and an optimistic variant — political centralization with economic decentralization.

Policy Papers:

Fiscal Federalism in Russia: Scenarios for Development

Causes and Effects of fiscal incentives weakness at the local level in Russia

Fiscal Federalism: lack of incentives for growth for local authorities — reasons, challenges, possibilities (Rus)
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