Importance The article focuses on the problems related to spurring the economic development by the State with the help of fiscal tools. Typically, budget is treated as a derivative of economy. Thus, considering the decline of growth rates and the risk of stagnation and even recession in the coming years, Russia will face increasing difficulties in reinforcing budgets at all levels. Therefore, increasing the tax base of all budgets becomes very topical. We look at this problem from the viewpoint of the ability of the budget system's architecture to influence economic growth. Objectives In this article, our task is to find a fiscal system model that is the most effective one to stimulate subnational governments to increase tax bases for their territories' economic development. Methods As for methodology, we conducted a cross-country and temporal comparison analysis of different models of fiscal federalism that exist in different countries and periods from the perspective of their influencing the economic growth. Results Based on literature review and the cross-country analysis, we conclude that the Russian model of fiscal federalism does not create effective incentives for economic growth. Such a model relates to the class of low-competitive models of fiscal federalism. The typical characteristic of the models of this class is that all levels of the budget system, both vertically and horizontally, have strictly determined relations, which do not enable territories to compete with each other. These relations extinguish incentives for economic development at the local level. Conclusions and Relevance We conclude that in present economic conditions, Russia has to move to the model of highly competitive fiscal federalism, which implies hot competition of subnational governments, both vertically and horizontally, on attracting financial and labor resources and increasing business activity to achieve high rates of economic growth. The research results may be useful for building and reforming the fiscal system of the Russian Federation.
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