Impact of recession on total revenue of regional governments in Russia

Abstract

This study recounts the experiences of Russian regional governments in dealing with fiscal stress during the 2008-2012 period, a period of the most severe global economic downturn of the last seventy years. Much of the disparity is driven by differential endowments of energy resources and this diversity translates into highly diverse fiscal capacities and need for government services. Although regions do have some independent revenue-raising authority, all taxes are administered by the National Ministry of Taxation and a sizable share (roughly 45%) of total national revenue is transferred to regional and local governments. The transfers, however, are not of equal importance to all regions. This research identifies what sorts of governments have faced the most fiscal stress, how shares of revenue from various sources shifted with the recession, and how the fiscal system responded to the recession. The following research questions are explored in the paper: (1) What sorts of governments have faced the most fiscal stress during the recession? What parts of the country have subnational governments in the greatest fiscal stress? Where was fiscal stress the greatest? (2) What factors have driven fiscal stress? (3) How have governments with the greatest stress dealt with fiscal stress? (4) How did revenue shares with the recession? Were certain sources more heavily impacted than others? (5) How did corporate income tax and personal income tax shares change with the recession? The intention of this paper is to expand knowledge of the attributes of the regional and local budgeting system in Russia and improve approaches for dealing with fiscal stress.