The determinants of budget revenues of Russian regions

Abstract

This paper discusses the determinants of regional budget revenues and evaluates their impact on the level of budget provision of Russian regions. We used the panel data on 80 Russian regions in 2006-2014 embracing average population, GRP disaggregated by main economic activities, tax revenues both collected and allocated at the regional level, intergovernmental aid and total budget revenues of consolidated budgets. We applied the least-squares methods with fixed and random effects to estimate the regressions between the structure of employment in main economic activities and the collected tax revenues in Russian regions. The constructed model allowed us to distinguish activities with positive and negative influence of employment on the general tax level and to determine the elasticity of the collected tax revenue per capita with respect to the shares of employees engaged in various economic activities. Further we applied the weighted least-squares method to estimate the model, demonstrating dependency of the budget revenue per capita in Russian regions on the collected tax revenue per capita, the level of tax absorption and the share of intergovernmental transfers in consolidated regional budgets. The constructed model demonstrated high elasticity of budget provision of Russian regions with respect to the general tax level, and even more with respect to the level of tax absorption. Nevertheless, the inter-budgetary transfers showed a very slight positive impact on the dispersion of the regional budget revenue per capita over the given period. Our findings are applicable to the management of budget revenues at the regional level and to the improvement of the Russian model of fiscal federalism.