Distribution of Financial Resources Within the Budget System of the Russian Federation and Regions’ Economic Growth

This article examines the impact of central government transfers and other sources of regional budget revenues (income tax and property tax) on per capita GRP growth in Russian regions. Analysis is based on official data of 78 regions for the period 2005-2014. The results indicate that transfers, while intending to be an instrument of regional incomes equalization, are negatively associated with economic growth of Russian regions, which contrasts with other estimates of federal transfers’ impact on regional economic growth in Russia. This phenomenon can be explained by high rate of social expenditures in regional governments’ spending. At the same time there is positive relationship between regional budget’s investment and economic growth that indicates significant role of public goods for regional economic development. This study can be considered as confirmation of those conclusions concerning impact of fiscal decentralization on economic growth of Russian regions which claim that current system of intergovernmental relations on sub-national level cannot embody the benefits of fiscal federalism as a principle of effective regional development. Significant factors of regional per capita GRP growth are own sources of region’s budget revenues which reflect costs of doing business. So the rise in property taxes retards economic growth in a region. For the regional authorities it makes sense to operate more flexibly with this tool, especially in periods of economic recession when inflow of corporate income tax to budget tends to decreas