International Center for Public Policy

1999 Working Papers

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Working Paper Number 99-03
Fiscal Decentralization in the Russian Federation During the Transition
Jorge Martinez and Jameson Boex, July 1999

Intergovernmental fiscal relations may be the most contentious issue in the Russian Federation today. This is the result of the complexity of the problems intertwined with intergovernmental relations. These problems include the recent history of disintegration of the Soviet Union; the war in Chechnya; the ethno-linguistic, religious and historical differences across its vast territory; great variations in the endowment of mineral resources; increasingly large economic and fiscal disparities across regions and local governments; and the spreading sentiment in some regions that they can be better off by seceding from the Federation. It is not an overstatement to say that the survival of the Russian nation itself depends on the establishment of a system of intergovernmental fiscal relations that is functional and appropriate.

This document provides an in-depth analysis of the various dimensions of the Russian system of intergovernmental fiscal relations. Chapter I presents an introductory overview. Each subsequent chapter contains the discussion of a particular dimension of fiscal decentralization in the Russian Federation. The assignment of expenditure responsibilities in the Russian Federation is discussed and analyzed in Chapter II. Next, the assignment of tax revenues and other revenue issues, including tax administration and financial administration are considered in Chapter III. Chapter IV presents the use of intergovernmental transfers in the Russian system. Chapter V addresses the topics of subnational borrowing and emergency fiscal controls. Finally, Chapter VI reviews the main issues in policy formulation faced by the Russian government in their efforts to reform their system of intergovernmental fiscal relations.

Working Paper Number 99-02
Intergovernmental Fiscal Relations in Leningrad Region
Roy Bahl and the Intergovernmental Fiscal Relations Team, March 1999

The purpose of this analysis is to describe the financial structure of the Leningrad Oblast government and its rayons, to describe the financial relations between the oblast and local governments, to identify the fiscal policy issues with which the government must deal in the next few years, and to suggest options for policy reform. The analysis reviews:

Public Finances of the Region and the Regional Government

Policy Issues and Reform Options

• Federal - Regional Issues
• Oblast-Local Relations
• A Proposed Revenue Sharing Approach For Leningrad Region

Working Paper Number 99-01
Implementation Rules For Fiscal Decentralization
Roy Bahl, January 1999

Rule #1
Fiscal decentralization should be viewed as a comprehensive system

Rule #2
Finance follows function

Rule #3
There must be a strong central ability to monitor and evaluate decentralization

Rule #4
One intergovernmental system does not fit the urban and the rural sector

Rule #5
Fiscal decentralization requires significant local government taxing powers

Rule #6
Central governments must keep the fiscal decentralization rules that they make

Rule #7
Keep it simple

Rule #8
The design of the intergovernmental transfer system should match the objectives of the decentralization reform

Rule #9
Fiscal decentralization should consider all three levels of government

Rule #10
Impose a hard budget constraint

Rule #11
Recognize that intergovernmental systems are always in transition and plan for this

Rule #12
There must be a champion for fiscal decentralization