Fiscal Reform in Russia and the Transformation of Local Public Finance

An Analysis of the “Program for the Development of Fiscal Federalism in the Russian Federation in the Period until 2005”

Abstract

The purpose of this paper is to evaluate the reforms of local public finance in Russia that have been carried out during the first term of the Putin administration from 2000 to 2003. The building processes for home rule and local pubic finance institutions in Russia started during the 1990s, although it was after 2000 that a comprehensive fiscal reforms focusing on municipalities ensued. Therefore, after a brief survey of the problems during the 1990s that caused reforms to be necessary, this work attempts to examine a“Program for the Development of Fiscal Federalism in the Russian Federation in the Period until 2005”that was introduced in 2001 and gave an orientation for reforms of intergovernmental fiscal relationship.
The program tried to strengthen federal control over local public finances, by introducing uniform rule at federal level for the delegation of expenditure authority, revenue distribution, and intergovernmental transfers, that have to be applied to all levels of government. It also aimed at improving the efficiency of local public finances by strengthening the fiscal independence of the municipalities.
As a result of the reforms, local government retained less taxable revenue source, causing them to depend more heavily on fiscal transfers from federal and regional government. This change imposed certain constraints on the expenditure patterns of local governments, and caused changes in the local public service systems; subsidies for housing and public utilities were reduced, while social assistance to residents was increased. However, the actual reform process did not necessarily embody the ideals of the program in the sense that did not strengthen the fiscal independence of the municipalities.
It can be said that distinguishing feature of fiscal reforms under the Putin administration is an attempt to concentrate more fiscal resources within the federal budget while simultaneously strengthening political control over municipalities. And thus federal government tried to restructure the lax management of local public finances through reforms from above.