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- standardized by living standard rate (price ratio)








- budget revenues standardized by expenditure needs guideline








- budget revenues standardized budget expenditure ratio made use of in FFSR distribution for 2001.








Source: RF Ministry of Finance;, Cadochnikov, Synelnikov, Trounin (2001)), estimates by the authors

Variant 1 of the adjustment (with regard to the regional living standard indices) was to reflect the interregional differentiation by the cost of rendering the budget services. Apart from the interregional differentiation by the cost of rendering the budget services, Variant 2 also reflects the need for rendering the regional budget services. Variant 2 adjustment involved both the expenditure needs regional guideline for 1999, calculated in the paper by Kadochnikov, Synelnikov-Murilyov, Trounine (2001) and expenditure needs guideline which actually served as a basis for the Gross Tax resources adjustment by the Subjects of the Federation for the 2001 FFSR distribution. (all the calculations were based on region selection having the expenditure needs guideline calculated).

The calculation data signify indeed, that the federal financial aid distribution system has been reducing the per capita budget revenues' interregional dispersion since 1995, calculated with regard to the need for funding public goods; besides, the above dispersion decrease is evidenced regardless of the way of accounting the need for the budget expenditure performance. It is notable, that the equalization effect (dispersion decrease) as calculated for the budget revenues, adjusted with the help of the budget expenditure official ratio, has proved to be greater on average, than for the revenues normalized according to the expenditure needs guideline as estimated by CEPRA project. The above results from the fact, that the federal government appropriates the fianancial aid tending to rely on the Ministry of Finance for their estimates of the need for it. Further on, attention should be drawn hitherto that, under the adjustment of the average per capita budget revenues for living-wage ratio, the change of the resultant value dispesrion in case of the federal financial aid acceptance proved to be proximate to th rates originating from the adjustment of the regional budget revenues for the budget expenditure ratio. In other words, the application of the budget expenditure standards, calculated under CEPRA project research, attains a result equivalent to that of the application of the living-wage ratio in terms of reflecting the fiscal capacity interregional differentiation. It should be also emphasized, that the maximum equalization effect is characteristic of the periods marked by the maximum FFSR transfer value in total for the federal funding to the regions (1995, 1998 and 1999). The latter phenomenon might manifest a stronger intention of this federal support type to eliminate the fiscal capacity interregional disparities, than is embedded in the funds allocated via other channels. At the same time, the calculations data do allow a definite conclusion, whether it is through the FFSR transfers alone, that a more considerable contraction of the fiscal capcity iterregional disparities is facilitated, than is accomplished through the allocation of total for the federal financial aid. (see Tbale 3). Provided that, on the one hand, the financial aid distribution between the regions takes place in a manner that the federal government bases its calculations on the criteria of fiscal capacity equalisation, and on other considerations, on the other hand, it might also be admitted that the dominant periods for such federal support types as the FFSR formalized transfers will also be marked by toughening the federal government's policy towards the funds transferred to the regions through other channels.

In reference with the interregional federal support distribution structure it should be pointed out, that such distribution has been ultimately unequitable. While the federal financial aid recipients were represented by nearly all the regions of Russia, around 50% of funding was directed just to some Subjects of the Federation, numbered 13 (1992) to 23 (1997/1998) within each respective period. Of all the regions having the biggest share of the federal financial support for many years, the following ones are notable (as the biggest federal support recipients for 5 years or longer): the Khabarovsky Krai, the Altaisky Krai, the Krasnodarsky krai, the Prymorsky Krai, the Republic of Daghestan, the Kemerovo region, the Stavropolsky Krai, the city of Moscow, the Moscow region, the Buryat Republic, the Sakha Republic (Yakutia), the Rostov region, the Sakhalin region, the Amur region, the Kamtchatka region, the Magadan region, the Mourmansk region. It should be mentioned, that that the Subjects of the Federation listed above are not unconditionally highly-subsidized ones, i.e. highly dependent on the federal support, since the awarded funds' share of the budget revenues by the above regions may be smaller than that by the regions highly dependent on the federal appropriations in aid.

The regions highly dependent on the federal support (the so called highly subsidized Subjects of the Federation) would be defined as a group of regions comprising 20 Subjects of the Federation having the biggest budget expenditure shares funded by the federal financial aid6. For the whole observation period, the analysis shows that the scope of the highly-subsidized regions happened to include the below Subjects of the Federation most frequently: the Agynsky-Buryatsky Autonomous okrug, the Nothern Ossetya republic, The republic of Tyva, the Tambov region, the Evenkee Autonomous okrug, the Ingush Republic, The Kabardino-Balkar Republic, the Karachaevo-Tcherkesskaya Republic, the Komi-Permyatsky AO, the Adygeya Republic, the republic of Altai, the Daghestan Republic, the Jewish AO, the Koryaksky AO, the Republic of Kalmykia, the Kamtchatskaya region, the Tchukotsky AO, The Altaisky Krai. As has been vividly shown, of all the major federal aid-recipient regions (in terms of the federal funds absolute value), there are only three highly-subsidized Subjects of the Federation that could be distinguishable by our criterion.

Thus, the end results of the analysis of total for the federal financial support delivered to the budgets of the RF Subjects could account for the following conclusions:

1. For the whole lifetime of the Russian Federation as of an independent state having a multilevel budget structure, considerable volatility was displayed equally on the part of both the federal financial aid amounts and the structure of the funds transferred to the budgets of the Subjects of the Federation. For the recenet years, percentage share of total for the federal support delivered through the channels under observation has been evaluated at no more than 1,8% of GDP amount, while the financial aid is structured so as to prioritize the funds allocated as the FFSR transfers.

2. The combined dependence by the regional budgets on the federal support for funding has also undergone remarkable changes for the whole observation period. Lately, however, the federal support share of the regional budgets' revenues has failed to exceed 10%, which is partly due to the cutback of total for the federal financial aid and eventually for the reason of own-source revenue growth by the Subjects' of the Federation consolidated budget.

3. The federal support allocation among the Subjects of the Federation notably exerts an equalization impact - specifically since 1995, the federal funds acceptance by the regions has steadily diminished the dispersion of the regional budgets' average per capita revenues, adjusted for the needs of generating the regional public goods.

4. The figures stress the ultimate unequitability as the case for the federal support allocation between the regions (calculated both per capita and as the absolute values of the amounts, directed to the federal aid-recipient regions), which fact could still be rooted in the areal unevenness of the population density and industry location, as well as in the high interregional differentiation rate for the federal financial support requirements. At the same time, around 20 Subjects of the Federation are currently replenishing their budgets' revenue share by the federal funds to a major degree. These regions could be referred to as the highly-subsidized Subjects of the Federation.

The Fund for Financial Support to the Regions Transfers

The transferes from the Fund for Financial Support to the Regions (FFSR) have currently become a major kind of general financial support to the Subjects of the Federation. As was stated above, since the FFSR foundation in 1994, the transfer share of total for the federal support to the regions has increased by 60% from 10% to 70%. For its whole lifetime, the amount of funds awarded through FFSR has shown an increase from 0,36% of GDP in 1994 to 0,95-1% of GDP in 1998/2000. The above transfer share of the federal on-budget expenditures for the same period has increased from 1,55% to 7-8%. Eventually, 80 to 64 Subjects of the Russian Federation were entitled to receive a FFSR transfer. The 2001 Federal Budget Act prescribes transfers to 70 regions.

The FFSR transfers are allocated among the Subjects of the Federation according to a unified scheme, while the transfer value distribution between the regions is annually set as part of the Federal Budget Act for the respective year. For the last three years, the FFSR transfer allocation rests with the data on the average per capita fiscal capacity of the Subjects of the Federation (calculated by the tax load imposed upon the Gross Regional Product branches), adjusted for the ratio which describes the interregional differentiation of the objective expenditure needs. After the fiscal capacity is calculated (the so called Gross tax resources of the RF Subjects), the appropriations assigned by the Fund for Financial Support to the Regions are allocated as follows: the transfers of a 20% combined value of total for FFSR are entailed to the regions to bring the average per capita gross tax resources of the aid-recipient regions to one and the same level, which is calculated endogenously within the bounds of a scheme, with regard to the amount of the funds allocated. The FFSR remainder is allocated between the regions, the gross tax resources of which (although increased by the transfer's first part received) are below Russia's average, pro rata to the deviation from the average7.

In reference with the dependency by the RF Subjects' budgets on FFSR for transfers, which comes as a transfer share of a Subject's consolidated budgetary revenues/expenditures, a tendency is notable for this dependence to decline throughout the whole full-fledged performance period of this financial aid type. Thus, while an 8% of the regional budget expenditeres was financed in 1995 by the FFSR funds, the regional aggregate budget revenues being shaped at 8,2%, the share of the regional budget expenditures, sourced by FFSR transfers, diminished up to 6,8 % in 2000, whereas the share of the budget revenues, gained in transfers, reduced to 6,6%. (See Table 4).

For the RF subjects as a whole, the reduced dependence on the FFSR transfers against the simulaneous share increase of the latter in total for the federal financial aid, could not, however, be the consequence of the financial performance improvement with all the Subjects of the Federation. This tendency is rather caused both by a certain decrease of the FFSR absolute volume (see Table 1) reinforced by a smaller number of transfer recipients and by the revenue rise by more prosperious regions: while the dependency extent by all the RF subjects on the FFSR funds has been constrained for the recent years, the disparity rise in transfer distribution (the dispersion of some transfer shares of the regional budget revenues increased by factor of 1,5 by 2000 against the 1995 figures) resulted in generating a larger number of the RF subjects as highly dependent on the transfers - while the FFSR funds accounted for 50% of the budget revenues or more for just 7 regions (1995), the number of such regions was brought to 11 in 2000.

Table 4. Dependency level by RF Subjects’ budgets on FFSR for transfers in 1994 to 2000.








Percentage share of FFSR transfers of total for budget revenues forRF Subjects


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