On the determinants of regional government debt in Russia

Abstract

ABSTRACT This paper provides an analysis of the determinants of regional government debt in the Russian Federation using data from 2005–2017. We document that total indebtedness of Russian regions has grown substantially since 2010 and find significant changes in the structure of regional debt, primarily the increased use of budget credits offered by the federal government. Market debt instruments are determined by a different set of factors than non-market instruments. In fact, poorer and less fiscally independent regions have lower access to budget credits and are forced to rely on more expensive market debt instruments, particularly commercial loans. Budget credits and commercial loans are shown to be substitutes, although the nature of this substitution is contrary to declared redistributive goals of public policy. Finally, we find the presence of horizontal strategic interactions in debt issuance across Russian regions: regions react positively to increased debt issuance in the same federal district.