Fiscal Redistribution in a Fragile Federation: Moscow and the Regions in 1994

Abstract

Despite mass privatization and market reforms in Russia, the central state continues to redistribute considerable amounts of money between the country's eighty-nine regions. About 4.3 per cent of gross domestic product (GDP) – or 31 per cent of federal tax revenues – was transferred back to the budgets of the regions in 1994. The average region recovered about 45 per cent of the taxes it remitted to the centre in different kinds of budget transfers, up from 37 per cent in 1993. But this understates the true scale of redistribution. In addition, many federal spending programmes, while not explicitly targeted at particular regions, had a geographically concentrated impact. This includes ‘indirect’ transfers due to revisions of the proportion of tax the regions were permitted to keep from those proportions voted in the federal budget. Russia's 4.3 per cent compares to grants to state governments of 0.7 per cent of GDP in Austria (1992), 2.5 per cent in the United States (1992), 3.6 per cent in Germany (1992), and 3.9 per cent in Canada (1991) (calculated from OECD, Revenue Statistics of OECD Member Countries: 1965–1994 (Paris: OECD, 1995)).Aleksei Lavrov, ‘Rossiiskiy Byudzhetny Federalizm: Pervie Shagi, Pervie Itogi’, Segodnya, 104 (7 June 1995), p. 5.