Issues arising from the low efficiency of the mechanism for the State to provide the budgetary finance to heavily subsidized regions of the Russian Federation

Abstract

Subject. Despite the macroeconomic stability, the rate of economic growth is still low. Seventy two constituent entities of the Russian Federation need governmental subsidies, with six of them being highly subsidized. Moreover, the government allocates substantial funds to subnational transfers. Objectives. The study aims to determine what causes the low efficiency of the governmental subsidizing mechanism for highly subsidized regions. We also try to find how the situation can be improved. Methods. We applied methods of logic and statistical analysis. Results. We found that highly subsidized regions are not motivated to effectively utilize fiscal funds and find their own sources of finance. The article also indicates weaknesses and inaccuracies of fiscal forecasts and planning, including fiscal potential assessment techniques. There are no clear mechanisms incentivizing the regions to increment their financial potential. We also should note the clinging behavior and excessive centralization of the fiscal system. Conclusions and Relevance. The fact that the Russian fiscal practice predominantly depends on subsidies is caused by geographical, resource, socioeconomic, political and fiscal issues. As for highly subsidized regions, the modern subsidizing mechanism is insufficiently effective, since the regions are not motivated to effectively use the fiscal subsidies and find their own financial resources, and do not have appropriate levers to regulate and increment their financial potential. To eliminate this, they should expand financial opportunities and responsibility of regions as part of their economic policy. The economic policy should encourage innovation and harmonize the regional budgetary and fiscal policy. It is reasonable to cover more aspects for the assessment of the fiscal potential index, including fiscal expenditures of regions and their efficiency, improving the existing approaches to estimating expenditure commitments of the regions, using the model budget and proliferating the practice of budgetary expenditure reviews.