HARD BUDGET CONSTRAINTS: THEORETICAL FOUNDATIONS AND PROBLEMS OF RUSSIAN CITIES

Abstract

The purpose of this study is to analyze the theoretical foundations of the concept of “hard” budget constraints and its applicability to cities in the Russian Federation. To achieve this goal, the paper presents the key elements of the theory of budget decentralization, and also considers the following hypotheses: (1) regional authorities of Russia are prone to instability in terms of uniform tax standards for deductions to urban districts; (2) the indicated instability is a criterion of “hardness” of budgetary restrictions, which affects the interest of local authorities (cities) in the development of “subordinate” territories; (3) local budgets in Russia have relatively low tax autonomy. To test the proposed hypotheses in the context of the subjects of the Russian Federation for the period 2010–2018 unifi ed standards for deductions from federal and regional taxes to the budgets of urban districts were collected and analyzed; a volatility index of the specified standards was compiled, and then analyzed for the presence of statistical relationships with the main indicators of the development of small and medium-sized enterprises (SMEs) in the regions. Our observations have shown that in the context of the OECD countries’ budget structure the local level of government in Russia has relatively low tax autonomy, and regional authorities are unstable in terms of the standards considered, which generally does not correspond to the concept of “hard” budget constraints. The hypothesis of a statistical relationship between the “hardness” of budget constraints expressed through the volatility index of standards and the indicated interest of local authorities (cities), expressed in the development of SMEs, has not been confirmed. But this does not eliminate the need to make changes to the system of inter-budgetary relations of Russia proposed in the current work in the medium and long term.