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Is the public debt of the regions of Russia sustainable?

Alekhin B.I. Russian State University for the Humanities (RSUH), Moscow, Russian Federation ( )

Journal: Regional Economics: Theory and Practice, #4, 2019

Subject This article considers the issues related to the accumulation of public debt of the Russian Federation subjects.
Objectives To test for debt sustainability at the regional level, we use a model-based approach proposed by Bohn and the panel data of the Russian Federation fifty constituent entities for 2006–2017. Bohn's test looks for positive reaction of the primary surplus to the debt at the start of the period. Such a reaction confirms the debtor's fiscal solvency.
Methods The article estimates the model of panel data with fixed effects by least squares with dummy variables involving diagnostic tests.
Results Bohn's test resulted in negative and statistically insignificant reaction, which indicated fiscal insolvency at the regional level. The primary surplus reacts positively to the regional output and negatively to temporary budget expenditures.
Conclusions Fiscal insolvency is not manifested in real default on securities and expenditure commitments of regional governments. It is absorbed by the federal budget through the system of soft budget constraints at both levels of government.

A roller coaster ride for the Russian ruble. Part 2

Alekhin B.I. Russian State University for Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #2, 2018

Importance This article considers the relationships between the Brent crude oil price and the Russian ruble/dollar rate.
Objectives The article aims to empirically check the statements on loosening the dependence of the ruble on the price of Brent crude oil, using Russian data for the period from 16 June, 2014 to 27 November, 2017 (181 weekly values).
Methods The study uses econometric tools, which include tests for changes in the data structure, unit root, weak exogeneity, and a model of correction of equilibrium errors.
Results The article presents the results of the analysis of structural changes corresponding to the three regimes of the ruble exchange rate and Brent oil price.
Conclusions Various rate formation factors, such as low inflation and high key interest rate of the Bank of Russia, have stimulated the influx of foreign investments. The demand for rubles to purchase Russian assets, primarily government bonds, is rising, and the ruble exchange rate is rising as well. As a result, the ruble exchange rate loses its cointegration with Brent crude oil price.

Fiscal imbalance and economic growth of Russia

Alekhin B.I. Russian State University for the Humanities (RSUH), Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #1, 2019

Subject This article examines the impact of the Federal budget deficit on Russia's economic growth and the increasing crowding-out effect.
Objectives The study attempts to trace the relationship between the non-oil deficit of the Federal budget and the growth of Russia's economy within Q1, 2005 to Q1, 2018 (53 quarterly observations).
Methods The study uses the Solow–Swan growth model supplemented by the Deficit and Interest Expense variables. The econometric methodology includes tests for collinearity and stationarity to select explanatory variables. Due to different degree of integratedness of variables, the Autoregressive Distributed Lag model is used.
Results Bounds tests point to a positive long-term relationship between fiscal imbalance and economic growth. One-percent growth of the former was followed by 0,1-percent growth of the latter. Debt service charges, while having the expected symbol, statistically are insignificant. As for the short-run dynamics, it took economic agents three and a half quarters to restore the balance between dependent and independent variables.
Conclusions The study found no evidence of crowding-out. Rather, the debt burden was offset by the capital expenditure financed by borrowed funds that increased Russia's national income.

The Fisher effect in Russia

Alekhin B.I. Russian State University for the Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #46, 2015

Importance The Fisher effect means an assumption that the nominal interest rate is a sum of the real interest rate and expected inflation. Researchers demonstrate an ongoing and high interest to empirically check the Fisher effect mostly due to an important role of money in the economy.
     Objectives The research presents an empirical verification of the Fisher hypothesis in the Russian market of bank loans and relies upon 59 observations starting from Q4 2000 up to Q2 2015.
     Methods I applied the econometric methodology encompassing the extended Dickey–Fuller test for the unit root, Engle–Granger test for co-integration, Error Correction Model and the Granger casualty test.
     Results I detected the co-integration of non-stationary nominal interest rates and inflation, and slowly recovering balance between them. The inflation influences nominal interest rates, while they have no effect on the inflation.
     Conclusions and Relevance The Russian market of bank loans experiences the incomplete Fisher effect with a very slow correction. The incomplete Fisher effect is beneficial for borrowers, rather than banks. The conclusions call for the market liberalization, competition development in the banking sector and further privatization of State banks and other firms with high public interest. It is extremely important to reduce the inflation.

Fiscal decentralization and fiscal discipline

Alekhin B.I. Russian State University for Humanities (RSUH), Moscow, Russian Federation ( )

Journal: Regional Economics: Theory and Practice, #8, 2019

Subject The article focuses on the fiscal discipline and regions' fiscal balance indicating their aptitude to comply with the fiscal discipline.
Objectives The research evaluates how fiscal decentralization influences the fiscal balance. Thus, I referred to official sources to compile the timed panel data on 81 subjects of the Russian Federation for 2006–2017.
Methods The array of variables was specified through the Granger causality test. The empirical model was evaluated with the systemic generalized method of moments.
Results Fiscal decentralization is not associated with the weakening fiscal discipline. Overcentralization makes fiscal constrains even more stringent by delegating the spending power implying the centralized finance, meticulous segregation of regions’ rights and obligations and federal financial control. I discovered the positive correlation of fiscal discipline and fiscal independence of regions. Regions were noted to have a better fiscal balance when the percentage of regional taxes increased in their revenue. Measured with a gap between the decentralization of expenditures and revenue, a decreasing disparity in fiscal decentralization also induces a better balance.
Conclusions and Relevance The findings echo the commitment to tightening fiscal restrictions of regions by making them more fiscally autonomous, specifying and standardizing the terms on which financial aid is provided to regions.

Oil and the Russian ruble: two links of the same chain

Alekhin B.I. Russian State University for Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #16, 2016

Importance The article discusses the nominal rate of the Russian ruble and oil price.
Objectives I trace the relationship between the nominal price of a crude oil barrel and the nominal exchange rate of the Russian ruble using 835 weekly observations in between January 2000 and December 2015.
Methods I used econometric methods including the Bai–Perron test to detect structural breakpoints, augmented Dickey-Fuller test, Johansen cointegration test, vector model of error correction, Granger causality test and ordinary tests.
Results Stationarity, cointegration and causality tests were performed within the entire sample in five modes. I detected the cointegration of non-stationary Brent price and the Russian ruble rate in the modes after 2006. The outcome of the Johansen test looks more preferable in the mode of 9 June 2014 through 28 December 2015, where I noted the time threshold for recovery of the equilibrium between the crude oil Brent price and the Russian ruble rate in the current period after the price shock in the previous period.
Conclusions and Relevance I verified the hypothesis that the Russian ruble rate positively depended on the crude oil Brent price, though it was not only the price that determined it. The empirical model explains 96% of the rate variance, with the equation of the vector model of error correction with the crude oil Brent price substantiating for almost 40% of the rate variance.

Pension, inflation and public-sector debt

Alekhin B.I. Russian State University for Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #35, 2014

The article considers the issue of financial punitive measures in modern Russia in terms of pension savings, most of which get invested in nominal government bonds and managed by Vnesheconombank, the government-owned management company (GMC). The author uses a traditional research method, which is simplyfied in the sense that a full-fledged testable hypothesis is replaced by a thesis that an erosion of retirement savings' purchaing power is a product of financial punitive measures aimed to reduce the government's domestic debt. A set of information includes official statistics data, as well as the results of 414 government bonds issuances performed within the period of 2003-2013. The analysis of the given information supports that thesis. In modern Russia, we can observe all the conditions and elements of financial punitive measures as they are "prescribed" by the literature. The paper points out that the financial punitive measures mainly harm would-be pensioners, who by default, or knowingly allowed GMC to manage their pension accruels. GMC, whose investment options are severely constrained by "prudential" regulations and the lack of inflation-protected instuments, invests heavily in nominal government bonds issued primarily with negative real yields. Therefore, the GMC' objective recorded in investment declaration (to ensure the long-term growth of pension savings) is not attainable, if this increase is expressed in constant prices. From 2004 onwards, GMC has lost a quarter of the purchaing power due to inflation of its "pension" portfolio, while a group of private investment managers with more ample investment opportunities scored a draw in the fight against inflation.

A roller coaster ride for the Russian ruble

Alekhin B.I. Russian State University for Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #23, 2016

Importance After the Russian ruble became a petrocurrency, it got very important to examine the nature, scope and reasons for its fluctuations against the U.S. dollar used for oil contracts. The research covered the period from 3 January 2000 through 28 December 2015 (835 weekly indicators).
Objectives The research empirically checks the conventional opinion on that the Russian ruble rate depends on the Brent oil. If such dependence is identified, I determine its nature.
Methods The research uses an econometric methodology, including the Bai–Perron test for structural breaks in unknown points, Granger causality test, Dickey–Fuller tests for a unit root, Johansen test for cointegration, Engle test, Vector Error Correction Model and conventional diagnostic tests.
Results I performed tests for stationarity, causality, cointegration and weak exogeneity within the entire sample through five approaches formulated upon results of the Bai–Perron testing.
Conclusions and Relevance The research proved the hypothesis that the Russian ruble rate has a positive linear correlation with the Brent oil. In 2013–2015, the empirical model (cointegration correlation) explains 96% of variance in the currency rate, with the equation of the VECM system with the oil price on the right side covering almost 40% of variance in the currency difference. The cointegration of the Brent oil and the Russian ruble rate arose after 2006 and incremented, if we looked at the equilibrium recovery pace, which had become record high within 9 June 2014 through 28 December 2015. The process was fueled as the Russian economy had become more dependent on oil for the recent 15 years.

The real interest rate in Russia

Alekhin B.I. Russian State University for Humanities, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #22, 2015

Importance The article overviews rates of return on time deposits and governmental securities, examining the real interest rate on these instruments in Russia of the 21st century.
     Objectives The research aims at examining the effect of inflation, borrowers' interest rate policies, concentration of the time deposit segment and governmentalization of major banks on the real interest rate.
     Methods Using the quantitative analysis of official statitistical data and results of 450 auctions for placing government securities, I determine the real interest rate on time deposits and government securities. I carry out the quantitative analysis of the information.
     Results The real interest rate in Russia is permanently negative, i.e. it is an illegitimazed tax. It is applicable to banks that attract public funds in the form of time deposits. Afterwards through the government securities market, it is allocated in the favor of the State. Selling its securities with negative real return to banks, the government partially collects the tax, thus comepsating for reduced purchasing power of its budget due to inflation.
     Conclusions and Relevance Russia demonstrates all conditions making the real interest rate negative, i.e. moderate inflation, high percentage of population who are financially captured by the State and have to hold their savings with state-owned banks, high concentration of the banking sector and its oligopolistic structure, high extent of governmentalization of the largest banks, explicit or implicit capping of deposit rates and government securities yield. The conclusions illustrate the need to liberalize the market of retail deposits, improve public awareness and knowledge of personal financial management. If financial repressions are alleviated (this is the term used in academic literature, i.e. negative interest rate, it will attract more people to banks, thus increasing financial flows to the Russian economy.

Developing the partnership relations in taxation as a condition for taxable capacity-building

Alekhin S.N. Committee for Economic Development, Entrepreneurship and Environmental Protection, Public Chamber of Tula Oblast, Tula, Russian Federation ( )

Levacheva D.А. Department of Federal Tax Service of Russia for Tula Oblast, Tula, Russian Federation ( )

Journal: Finance and Credit, #8, 2019

Subject The article addresses partnership relations in taxation as a driver of tax administration efficiency and taxable capacity development.
Objectives We identify opportunities for building taxable capacity through the improvement of tax administration based on partnership relations in taxation, with the use of coordinated response measures to support taxpayers in challenging economic situations.
Methods We employ methods of systems analysis and dynamic modeling.
Results The paper considers partnership relations of taxpayers and tax authorities. It offers a modified scheme of tax administration, which enables to regulate the actions of partners when making informed decisions on the choice of tax response regime, i.e. implementation of control measures and action plan for debt recovery. We specify requirements to taxpayer partners and systematize criteria of their good faith, which determine the applicability of an individualized approach within the framework of the partnership.
Conclusions At present, the tax legislation does not provide for the application of an individualized approach that considers real possibilities of taxpayer survival in problematic situations. This may lead to unjustified losses of taxable capacity. Mitigation of tax response measures (both in terms of period of application and composition) is possible only if taxpayers comply with requirements of good faith in the course of partnership in taxation. It will help support taxpayers in difficult situations, maintain and develop taxable capacity.

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