Home  Journals  Economic Analysis: Theory and Practice  5(464) - 2017 May

Methods to analyze grants to ensure the balance of local budgets: Evidence from the budget system of the Komi Republic

Vol. 16, Iss. 5, MAY 2017

Article PDF Version

Received: 20 February 2017

Received in revised form: 25 March 2017

Accepted: 24 April 2017

Available online: 29 May 2017

Subject Heading: MATHEMATICAL METHODS AND MODELS

JEL Classification: C23, H77

Pages: 983-996

https://doi.org/10.24891/ea.16.5.983

Subject The article discusses problems of unbalanced local budgets of the Russian budget system.
Objectives The aim is to propose methods to analyze allocation of general purpose discretionary grants to local budgets within the budget system of a subject of the Russian Federation in the context of the problem of soft budget constraints.
Methods In the study, I reviewed relevant literature and legal framework, applied general scientific methods, correlation and regression analysis under the ordinary least squares technique, tested the quality of revealed relationship, calculated standardized ratios of regression.
Results I developed a methodology to test the softness of budget constraints at the level of local budgets. For the budget system of the Komi Republic, the paper confirms two types of factors influencing the parameters of general purpose discretionary grants to local budgets. They are the external shock in the parameters of distribution of expenditure obligations and dynamics of local investment.
Conclusions and Relevance The proposed methods are applicable to test the hypotheses about the relationship of volumes of discretionary grants and transfers and economic activity in the territory of spending units. Empirical studies are important for assessing the current system of distribution of expenditure obligations within the budget system of the Russian Federation.

Keywords: soft budget constraints, inter-budgetary transfer, general purpose discretionary grant, balanced budget, fiscal incentive

References:

1. Nazarov V. Mezhdunarodnyi opyt evolyutsii metodik raspredeleniya vyravnivayushchikh transfertov [International Experience the Evolution of Techniques Distribution of Equalization Transfers]. Available at: Link. (In Russ.) doi: 10.2139/ssrn.2264208
2. Bergvall D. et al. Intergovernmental Transfers and Decentralised Public Spending. OECD Working Papers on Fiscal Federalism, 2006, no. 3. doi: 10.1787/5k97b11z2hxw-en
3. Pettersson-Lidbom P., Dahlberg M. An Empirical Approach for Evaluating Soft Budget Constraints. Uppsala University Working Paper Series, 2003, no. 28. Available at: Link
4. Sinel'nikov-Murylev S. et al. Problema myagkikh byudzhetnykh ogranichenii rossiiskikh regional'nykh vlastei [The problem of soft budget constraints of Russian regional authorities]. Moscow, Gaidar Institute Publ., 2006, 300 p.
5. Moesen W., Cauwenberge P.V. The Status of the Budget Constraint, Federalism and the Relative Size of Government: A Bureaucracy Approach. Public Choice, 2000, vol. 104, iss. 3-4, pp. 207–224.
6. Turnbull G.K. The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence. Journal of Urban Economics, 1998, vol. 44, iss. 1, pp. 1–26.
7. Pettersson-Lidbom P., Dahlberg M. An Empirical Approach for Estimating the Causal Effect of Soft Budget Constraints on Economic Outcomes. Available at: Link
8. Robinson J.A., Torvik R. A Political Economy Theory of the Soft Budget Constraint. NBER Working Paper, 2006, no. 12133.
9. Worthington A.C., Dollery B.E. The Political Determination of Intergovernmental Grants in Australia. Public Choice, 1998, vol. 94, iss. 3, pp. 299–315.
10. Becker E. The Illusion of Fiscal Illusion: Unsticking the Flypaper Effect. Public Choice, 1996, vol. 86, iss. 1, pp. 85–102. doi: 10.1007/BF00114876
11. Cai H., Treisman D. State Corroding Federalism. Journal of Public Economics, 2004, vol. 88, iss. 3-4, pp. 819–843. doi: 10.1016/S0047-2727(02)00220-7
12. Rubinfeld D. The Economics of the Local Public Sector. In: Auerbach A.J., Feldstein M.S. (eds). Handbook of Public Economics. Vol. II. Amsterdam, Elsevier Science Publishers B.V., 1987, pp. 571–645.
13. Tiebout C.M. A Pure Theory of Local Expenditures. Journal of Political Economy, 1956, vol. 64, no. 5, pp. 416–424.
14. Oates W. Fiscal Federalism. New York, Harcourt Brace Jovanovich, 1972.
15. Prudhomme R. The Dangers of Decentralization. World Bank Research Observer, 1995, vol. 10, no. 2, pp. 201–220.
16. Bird R.M. Subnational Taxation in Developing Countries: A Review of the Literature. Journal of International Commerce, Economics and Policy, 2011, vol. 2, no. 1, pp. 1–23. doi: 10.1142/S1793993311000269
17. Logan R. Fiscal Illusion and the Grantor Government. Journal of Political Economy, 1986, vol. 94, no. 6, pp. 1304–1318. doi: 10.1086/261434
18. Trunin I., Katamadze A., Nazarov V. Mezhbyudzhetnye otnosheniya i subnatsional'nye finansy. V kn.: Rossiiskaya ekonomika v 2004 godu. Tendentsii i perspektivy. Vyp. 26 [Inter-budget relations and subnational finance. In: Russian economy in 2007. Trends and outlook. Iss. 26]. Moscow, Gaidar Institute Publ., 2005, pp. 75–146.
19. Mamedov A., Nazarov V. Mezhbyudzhetnye otnosheniya i subnatsional'nye finansy. V kn.: Rossiiskaya ekonomika v 2007 godu. Tendentsii i perspektivy. Vyp. 29 [Inter-budget relations and subnational finance. In: Russian economy in 2007. Trends and outlook. Iss. 29]. Moscow, Gaidar Institute Publ., 2008, pp. 149–179.
20. Rodden J. The Dilemma of Fiscal Federalism: Grants and Fiscal Performance around the World. Mimeo, MIT, Department of Political Studies, 2001.

View all articles of issue

ISSN 2311-8725 (Online)
ISSN 2073-039X (Print)

Journal current issue

Vol. 23, Iss. 3 March 2024

Archive