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Russia's market distorting federalism: decentralisation, governance, and economic performance in Russia in the 1990s

[working paper]

Eckardt, Sebastian

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Corporate Editor Freie Universität Berlin, Osteuropa-Institut Abt. Politik
Abstract Der vorliegende Beitrag untersucht die Entwicklung zwischenstaatlicher Beziehungen in der russischen Föderation während der Zeit der wirtschaftlichen und politischen Transformation unter besonderer Berücksichtigung der Dynamiken politischer, administrativer und fiskalischer Dezentralisierung. Der Autor analysiert auch, wie die Struktur der Macht- und Ressourcenverteilung zwischen den verschiedenen Ebenen der Regierung die staatlichen Anstrengungen in vielen Bereichen, wie z.B. bei der effizienten Bereitstellung öffentlicher Güter oder der Unterstützung des geschäftlichen Wachstums, beeinflussen. Im ersten Kapitel erfolgt ein Überblick über relevante theoretische Literatur zu diesem Themenkomplex. Die Hauptergebnisse der Debatte über die Interaktion von Institutionen, Regierungsgewalt, Dezentralisierung und Wirtschaftsentwicklung werden dabei im Kontext der postkommunistischen Transformation operationalisiert. Das zweite Kapitel konzentriert sich auf den Fall Russland. Welche relevanten Institutionen gibt es? Welche formellen und informellen Regeln gibt es im Kontext der zwischenstaatlichen Beziehungen und der Akteure innerhalb des föderalen Systems? Welche Auswirkungen haben die zeitgleiche politische und fiskalische Dezentralisierung auf die Effizienz des institutionellen Designs? Im letzten Kapitel stellt der Autor seine Hauptergebnisse und Schlussfolgerungen vor, die als Grundlage für politische Optionen und Reformempfehlungen dienen können. (ICD)

"In theory fiscal decentralisation is seen as a way to overcome informational constraints and opportunistic behaviour in a political system. It can increase accountability and the efficiency of the public sector thus improving the quality of governance and enhancing economic growth. However, empirical and theoretical studies of decentralisation suggest that the positive effects associated with fiscal decentralisation heavily depend on the institutional structures governing intergovernmental relations. Since in practice decentralisation is often the outcome of an intricate political process, the evolving institutional structures can limit efficiency. Indeed, the decentralisation process in the Russian Federation has been rapid, uncoordinated and largely non-transparent, with the emerging institutional system of intergovernmental relations limiting economic efficiency. Decentralisation has been taking place in a complex environment and was pulled and pushed by a multitude of factors. The problems intertwined with intergovernmental relations include the recent history of disintegration of the Soviet Union; the ongoing violent conflicts in Chechnya; the ethno-linguistic, religious and historical differences across Russia's vast territory; great variations in the endowment of mineral resources; increasingly large economic and fiscal disparities across regions and local governments. This political complexity has resulted in a malfunctioning system of intergovernmental relations. The paper argues that various aspects of this system have created adverse incentives for sub-national governments. For most of the 90s sub-national governments faced weak fiscal incentives for responsible budgetary management and the adoption of policies conducive to entrepreneurship, fair competition, and the development of new private firms. This is reflected in the poor climate for business and investment, excessive entry barriers, licenses, fees, taxes and various types of extortion imposed by regional and local governments. Moreover, the concentration of a significant share of federal transfers in regions with rather conservative economic policies has -while smoothing income disparities- contributed to the persistence of gaps in the economic base of regions and helped to delay restructuring. Beside the incentive problems deriving directly from the institutional design of the fiscal system another important factor certainly contributing to its malfunctioning is that sub-national governments have been captured by special interest groups. Colluding with large enterprises many regions have engaged in evading the payment of federal shares of tax revenues in order to increase share remaining within the region in particular by the extensive usage of barter and money surrogates. Hence, regional governments generally contributed to stagnant growth and persisting governance problems, e.g. inefficient tax collection, lack of economic restructuring, barter and arrears in Russia in the 90s. Decentralisation, while certainly benefiting some regions and enterprises, created externalities for the country as a whole, that undercut any potential economic benefits that it might be expected to deliver." (author's abstract)
Keywords Russia; transformation; post-communist society; post-socialist country; economic change; political change; federalism; decentralization; economic development (on national level); national state; institution; institutional change; fiscal policy; budget; socioeconomic development; expenditures; market economy; USSR successor state
Classification National Economy; Macrosociology, Analysis of Whole Societies; Political System, Constitution, Government
Document language English
Publication Year 2002
City Berlin
Page/Pages 41 p.
Series Arbeitspapiere des Osteuropa-Instituts der Freien Universität Berlin, Arbeitsschwerpunkt Politik, 42
ISSN 1434-419X
Status Published Version
Licence Deposit Licence - No Redistribution, No Modifications