Developing Incentives to Increase Revenue Base of Regional and Local Budgets in Russian Federation

Student: Mosalev Aleksandr

Faculty: Faculty of Public Administration

Educational Programme: Bachelor

Final Grade: 8

Year of Graduation: 2014

A level of budgetary sufficiency of Russian regions and municipalities has been steadily declining the last few years. There were 19 donor regions in 2007. This number dropped to 10 by 2013.  A level of municipal debt also rose from 134 billion in 2009 to 245 billion in 2012.What are the reasons for this trend? Many experts believe the problem is caused with absence of incentives to increase revenue base among local and regional authorities.That is why the aim of this study is to identify and assess factors of stimulation of local and regional authorities to increase revenue base. According to the aim, research tasks are following:•         To analyze legislation of budget and tax;•         To study the foreign experience;•         To analyze the development of intergovernmental relationship;•         To make case study of experience of Kaluga region;•         To rank obtained factors.An availability of incentives to increase the revenue base is determined by the amount of effort of financial authorities. They must strategically plan the increase of budget revenues, effectively manage the property. In general, investment, tax, fiscal and debt policies should be qualitative. If it happens so the region's economic performance (delivery of tax revenues, the amount of investment, gross regional product) will grow.4 major factors affecting the incentives of regional and local authorities to increase the revenue base of budget can be allocated. The first factor is the financial independence of regional and local authorities. This factor includes the dependence of the budget on the decisions taken by the federal government. It also includes the share of the consolidated budget of subjects in Russian consolidated budget and the question of budget sufficiency.Another factor increasing the incentives of regional and local authorities to increase the revenue base is the transparency and predictability of the distribution of intergovernmental transfers from the budgets of the federal and regional levels.One of the reserves of budget revenue growth could be reducing arrears and the share of shadow economy. However, regional and local authorities have no considerable levers of influence on the situation. Regional and local authorities should have tools of influence on the shadow economy and of increase of “tax culture”. So it is the third factor.The last but not the least factor is a tax system. Which tax should be transferred to regional or local authorities in order to increase their incentives to develop the economy? It is not about strengthening the revenue base of regional or local budgets. It is the question of the effectiveness of the tax system in terms of stimulating the authorities to increase the revenue base.

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