Equalization of fiscal capacity in Russian regions: Illusion or reality?

Abstract

The striking contrast between Russian territories in terms of fiscal capacity led more than 30 years ago to the creation of a special federal methodology for allocating transfers to equalize fiscal capacity, designed to bring the level of budget services in outsider regions closer to the Russian average. This task remains relevant in present. At the same time, in official documents and most literary sources the fundamental question of what is meant by equalizing fiscal capacity is either not directly discussed or obscured. This work is devoted to the study of the following questions: what is the main content of the fiscal equalization policy, what criteria of convergence (differentiation) does it rely on, what are its actual results in the current and long-term retrospective? Based on data from the Ministry of Finance of the Russian Federation, it is possible to correctly calculate the level of fiscal capacity after providing transfers to a particular region relative to the national average. In order to present a more complete picture of regional fiscal capacity, both before and after the allocation of subsidies, along with its systemic characteristics, private indicators were used that characterize the ratio of fiscal capacity to 5, 10, 20, 40 leading regions and the same number of outsiders. Calculations show that the potential for convergence of fiscal capacity indicators inherent in the Methodology was almost exhausted by about the middle of the 2010s. It can be assumed that the fundamental reasons for the convergence and stratification of fiscal capacity indicators are related not so much to the policy of equalization as to the circumstances beyond it.