Fiscal Federalism and Regional Performance
IMF Working Papers, November 22, 2017
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Bibliographic details
- Authors: Gabriel Di Bella, Oksana Dynnikova, Francesco Grigoli
- Published: November 22, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484330166.001
Overview
- Sound regional policies are essential for balanced and sustained economic growth.
- The interaction of federal and regional policies with cross-regional structural differences affects human and physical capital formation, the business climate, private investment, market depth, and competition.
- This paper summarizes the main elements of Russia's fiscal federalism, describes the channels through which it operates, and assesses the effectiveness of regional transfers in reducing regional disparities.
Main findings
- Federal transfers to regions contributed to reducing disparities arising from heterogeneous regional tax bases and fiscal revenues.
- Regions with initially lower per capita income were able to increase human and physical capital at higher rates following transfers.
- There is little evidence that transfers contributed to increased cross-regional growth synchronization.
- Federal transfers did not significantly improve regional fiscal sustainability.
- The lack of convergence in per capita real income across Russian regions in the last 15 years supports the conclusion about limited fiscal sustainability effects.
Channels and mechanisms analyzed
- Interaction of federal and regional policies with structural differences across regions.
- Effects on human capital formation.
- Effects on physical capital formation.
- Effects on the business climate, private investment, market depth, and competition.
- Role of heterogeneous regional tax bases and fiscal revenues in driving disparities.
Policy implications and interpretations
- Targeted federal transfers can reduce disparities caused by uneven tax bases and fiscal revenues by enabling faster accumulation of human and physical capital in lower-income regions.
- Transfers alone appear insufficient to achieve cross-regional growth synchronization.
- Transfers did not materially enhance regional fiscal sustainability over the period analyzed, suggesting complementary reforms may be necessary to foster long-term convergence.
Content in this bundle
- Fiscal Federalism and Regional Performance, WP/17/265, November 2017