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Consortium for Economic Policy Research and Advice WCER Canadian Association Institute Working Academy International of Universities for the Economy Center of National Development and Colleges in Transition for Economic Economy Agency of Canada Reform Sectoral and Regional Specifics of Budgetary Institutions Reform in Russia Moscow 2005 334.724(470+571) 67.401 + 65.49 93 I58 Sectoral and Regional Specifics of Budgetary Institutions Reform in Russia M.:

IET, 2005. P. 372 Agency CIP RSL Introduction Batkibekov S.; Chapter 1.1 Shishkin S., Zaborovskaya .;

Chapter 1.2 Klyachko T, Volkov A.; Chapter 1.3 Dezhina I.; Chapter 1.4 Shishkin S.; Chapters 2.1, 2.2 Good D., Carin B.; Chapter 2.3 Bolshakova ., Zolotareva .; Chapter 3.1 Chetverikov S., Zolotareva .; Chapter 3.2 Zolotareva .; Chapter 3.3 Zolotareva ., Batkibekov S.; Chapter 3.4 Zolotareva ., Shadrin .; Chapter 3.5 Zolotareva .; Chapter 4.1 Shishkin S., Besstrtemyannaya G.; Chapter 4.2 Klyachko T, Volkov A.; Chapter 4.3 Dezhina I.; Chapter 4.4 Shishkin S.; Conclusion Zolotareva .; Annex 19 Good D., Carin B.

The paper deals with main aspects of the budgetary network reform in Russian Federation. The authors analyze the current state of the budgetary network and budgetary financing of Russia's social sphere with respect to individual branches of the budgetary sector, and international experiences in this area.

The key sections of the paper study general guidelines and prospects for the budgetary network reform (optimization of the budgetary network, introduction of new organizational and legal forms in the budgetary sector, modernization of forms of financing the provision of social services, introduction of results oriented funding) particularly with regard to individual branches of the budgetary sector.

JEL Classification: H4, I0, I1, I2, L3 The research and the publication were undertaken in the framework of CEPRA (Consortium for Economic Policy Research and Advice) project founded by Canadian Agency for International Development (CIDA).

ISBN 5 93255 176 5, Gazetny per., 125993 Moscow, Russia Tel. (495) 629 67 36, FAX (095) 203 88 E MAIL info@iet.ru, WEB Site http://www.iet.ru Content Introduction..............................................................................1. Analysis of Current State of Public Sector and Public Financing of the Social Sphere.............................. 1.1. Health service................................................................. 1.1.1. Financing of the public health system.......................... 1.1.2. Characteristics of the public health institutions network............................................................. 1.1.3. Conclusions.............................................................. 1.2. Education....................................................................... 1.2.1. General state of the educational system....................... 1.2.2. Situation in separate segments of the educational system.................................................... 1.2.3. Reform of the financing system of the college education...................................................... 1.2.4. Conclusions.............................................................. 1.3. Science.......................................................................... 1.3.1. Scientific institutions network...................................... 1.3.2. Financing of science from the federal budget and other sources.................................................... 1.3.3. Conclusions.............................................................. 1.4. Culture and arts............................................................... 1.4.1. General characteristic of public institutions network of culture and arts................................................... 1.4.2. Financing of public institutions network of culture and arts............................................................... 1.4.3. Conclusions.............................................................. 2. General Approaches to Reforming the Model of Social Service Delivery in Canada and Some Other Countries..................................................... 2.1. Alternative service delivery............................................... 2.2. Evaluating efficiency and effectiveness in public sector delivery........................................................ 2.2.1. Why to invest in evaluations....................................... 2.2.2. Individual and organizational performance arrangements................................................................... 2.3. Conclusions..................................................................

3. General Venues and Prospects for the Budget Network Reform................................................................... 3.1. Analysis of the state of budget institutions network and main venues for its efficiency and effectiveness improvement............................................. 3.2. Reorganization of budget institutions by implementation of the new organizational and legal status.................................................................... 3.3. Transition to the new financing arrangements of the social services............................................................ 3.4. Implementation of performance based budgeting arrangement........................................................ 3.5. Conclusions.................................................................. 4. Principal Venues of the Reform In Individual Branches of the Budget Sector............................................ 4.1. Health care................................................................... 4.1.1. Venues of restructuring of the public health care institutions network................................................... 4.1.2. Optimization of the health care institutions network........................................................... 4.1.3. Transforming a part of health care institutions into other organizational and legal forms............ 4.1.4. Conclusions............................................................ 4.2. Education..................................................................... 4.2.1. Main objectives and priority avenues for reforming the educational system.................................. 4.2.2. Restructuring the budget network in the educational area...................................................... 4.2.3. Main avenues of the vocational training reform.................................................................. 4.2.4. Creating equal starting opportunities for receiving general education.......................................... 4.2.5. Modernization of financial and economic mechanisms in the education sector................................... 4.2.6. Conclusions............................................................ 4.3. Science........................................................................ 4.3.1. Main avenues of reforming the research organizations network and budgeting in the research area........................................................... 4.3.2. Reforming the research institutions network........................................................... 4.3.3. Optional scenarios of reforming the research organizations network.................................... 4.3.4. Conclusions............................................................ 4.4. Culture and fine arts...................................................... 4.4.1. General avenues of institutional transformations in the sphere of culture.............................. 4.4.2. Approaches to reforming the network of budget institutions of culture and arts............................................................. 4.4.3. Main findings........................................................... Conclusions........................................................................ References.......................................................................... Annex 1: The public interest test for alternative service delivery options........................................................... Annex 2: The eight steps of the next steps.............................. Annex 3: Business case components for alternative official languages.................................................................... Annex 4: Components for an accountability framework for alternative service delivery.................................................. Annex 5: Procurement............................................................. Annex 6: Key success factors in alternative service delivery....................................................................... Annex 7: Evaluation techniques and tools.................................. Annex 8: Australian and New Zealand experience...................... Annex 9: Evaluation courses.................................................... Introduction Considerable government guarantees in social sphere together with a vast network of institutions and agencies that deliver social services left over from the distributional Soviet system represent a considerable burden for the budget system that is incompatible with the level of reve nues, which the budget system can support in the circumstances of imperfection of public institutions1.

Tight budgetary policy characteristic of the post crisis period has al lowed containing social expenditures within permissible limits thus re ducing the risk of a serious crisis in case of considerable deterioration of economic situation resulting in the fall of budget revenues. At the same time, the government avoided initiating serious social reforms aimed at, first, reviewing social obligations putting them in line with pub lic financial capacity and with solvent market demand on certain types of social services and concrete definition of remaining guarantees;

second, at liberalization of the budget sphere leading to delegation of part of social service delivery including those related to government guarantees to the private sector; and third, establishing direct links be tween quality of delivered services and the volume of budget appropria tions.

A network of public institutions continued receiving guaranteed pub lic funding on the basis of estimate of revenues and expenditures.

These conditions do not provide incentives for the recipients of funds to achieve certain results. Public funding is aimed not at service delivery but at preserving the existence of the old system itself. Funding on the basis of estimates is in itself hang the expense (so called zatratny me tod) method and robs institution of the incentives directed at increas ing effectiveness of the social service delivery and at the saving of pub lic funds.

Need to support a vast net of social institutions against the back ground of a reduction of budget expenditure share in GDP in the post Soviet period has led to the situation in which the level of budget financ Transition Economy: Outlines of Post communist Russian Economic Policy. 19982002.

Moscow, Delo Publishers.

ing of the social sphere began lagging behind the level of average ex penditures assigned to the social service delivery, which are formed under the pressure of salaries growth, on the whole in the economy, growth of the utility services costs, alternative economic costs, etc. One can differently explain the reasons for the inflation of social costs in the social sphere: as a result of unreasonable growth of rate of return on certain types of activity; excess of demand over supply, which is limited by a shortage of professionals; barriers to entry in the market due to licensing; level of constant costs, which will incur new entries in the market; traditional distribution of resources primarily via public organi zations, etc.

Insufficient funding of public institutions resulted in a flight of spe cialists, low quality of service delivery and widespread corruption. Cur rent situation has led to funding from extra budgetary funds, which is comparable in volume with public financing. The former meets the existing demand for social services2, mainly through the network of public institutions. Referring to the shortage of funds, public institutions began absorbing funds from the extra budgetary sources, which are connected not only with main directions of activity of these institutions (agencies) but which are far beyond their interests (for example, rent of public property). Possibility to get additional revenues by public institu tions (agencies) was defined in the Civil and Budget Codes, which in itself was a forced measure connected with the lack of reforms in this sphere, on the one hand, and limited funds, which the government as signed for its financing, on the other.

Financial situation of public institutions began depending not on the character and quality of service delivery but on the availability of the floor space of their premises, on their own and ministerial lobby capac ity, on demand on paid services, on possibilities and good will of sub federal officials to allocate additional financing. Negative results let themselves known in the form of sharp differentiation in financial situa See in detail: Informal payments for medical assistance in Russia. Authors: S.V. Shishkin (Editor in chief), T.V. Bogatova .G. Potapchik, V.. Chernets, .. Chirikova, L.S.

Shilova; Independent institute of social policy. oscow, 2002; Russian Health System:

payment in cash. Authors: S.V. Shishkin (team leader), G.E. Bestremyannaya, .D. Kra silnikova; Independent institute of social policy. oscow.: HSE SU, 2004.

tion of institutions, use of public funds for covering costs resulting from commercial activity, accumulation of unapproved accounts payable on institutions obligations due to commercial activity, for which the gov ernment is responsible. Besides, paid service delivery becomes main reason for their downward quality.

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