THE DEVELOPMENT OF LARGE CITIES IN THE CONTEXT OF FISCAL FEDERALISM IN RUSSIA
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Introduction 4
Research problem 4
The purpose (goal) 4
The object 5
The subject 5
Research questions 5
Expected results 5
Chapter 1. Theoretical basis of urban agglomeration development and fiscal federalism ..6
Concept of urban agglomeration 7
Foreign experience of urban agglomeration development 17
Concept of Fiscal Federalism 20
Research gap on the Fiscal Federalism model 33
Chapter 2. Methodology of the research. Determinants of fiscal federalism and urban development 36
Research design and hypothesis 38
Expected outcomes and findings 43
Potential implications 43
Chapter 3. Empirical analysis of the impact of fiscal federalism on the economic
development of the constituent entities of the russian federation 44
Descriptive statistics 44
Regression analysis and results 47
Discussion on the results obtained 51
Proposed methodology for further researches 55
Conclusion 58
Limitations and further researches 59
Sources of literature 61
Research problem 4
The purpose (goal) 4
The object 5
The subject 5
Research questions 5
Expected results 5
Chapter 1. Theoretical basis of urban agglomeration development and fiscal federalism ..6
Concept of urban agglomeration 7
Foreign experience of urban agglomeration development 17
Concept of Fiscal Federalism 20
Research gap on the Fiscal Federalism model 33
Chapter 2. Methodology of the research. Determinants of fiscal federalism and urban development 36
Research design and hypothesis 38
Expected outcomes and findings 43
Potential implications 43
Chapter 3. Empirical analysis of the impact of fiscal federalism on the economic
development of the constituent entities of the russian federation 44
Descriptive statistics 44
Regression analysis and results 47
Discussion on the results obtained 51
Proposed methodology for further researches 55
Conclusion 58
Limitations and further researches 59
Sources of literature 61
The issues of managing the state-federal system have been and will be related for Russia throughout the entire period of its formation and development. In the topic of public administration, at the moment, one of the most vital issues is the problem of managing fiscal federalism for the development of the country as a whole (Shvetsov, 2020). Moreover, the look at urban development within the framework of fiscal federalism is of relatively vast interest. In the world of academic literature, extensive attention is paid to various problems of federalism (Elazar 1996, Erk 2006). Part of the research is closely associated to the role of federalism in state territorial administration and development (Gunlicks, 1994; Amoretti & Bermeo, 2004; Bownan & Pagano, 1994). In western literature, particular attention is paid to fiscal federalism (Whiltshire, 1986; Lavaggi, 1991), one of the main principles of which is to preserve a balance in the budgets of revenues and expenditures at different government levels (Stenberg, 1994; Mikesell, 1994). The context of the Russian Federation in this direction is an extremely interesting and developing area for research (Baklaeva, 2016), in particular, because, due to the size of the country and the heterogeneity of its regions, federalism in Russia is inevitable (Zhuravskaya, 2010). The relevance of this issue is enhanced by the fact that there are conflicting opinions among the authors about the existing system of fiscal federalism in Russia. As a result, this paper is aimed at studying the impact of fiscal federalism on regional development in Russia.
Research problem: in various academic works, a contradiction has been revealed regarding the influence of the model of fiscal federalism on the urban development of the Russian Federation agglomerations. On the one hand, scientists (Prud'homme, 1994; Tanzi 1996; Fukasuku & de Mello, 1998; Fishman & Gatti, 2002; Tanzi, 2002) argue that in countries with transitional or developing economies, the application of decentralized fiscal federalism is dangerous and can lead to macroeconomic instability, corruption and disturb the urban development of agglomerations. Other authors (Weingast, 1995; Enikolopov & Zhuravskaya, 2003; Zhuravskaya, 2010; Baklaeva, 2016; Ermakova 2020; Shvetsov, 2020) believe that in such a developing country like Russia, centralized fiscal federalism is ineffective and needs to be changed towards decentralized to enforce the development of urban agglomerations.
The purpose (goal) of this work is to analyze the impact of fiscal federalism on the development of the Russian Federation agglomerations.
To achieve this goal, the following tasks were formulated:
• Study the theoretical foundations of the development of urban agglomerations and fiscal federalism.
• Develop a model to study the impact of fiscal federalism on the development of urban agglomerations.
• Analyze the impact of fiscal federalism on the economic and urban development of Russian regions.
The object of the research is the state policy of regional urban development of the Russian Federation.
The subject of this research is the economics of fiscal federalism of the Russian Federation.
Research questions:
• How does the existing system of fiscal federalism in the Russian Federation affect the urban development of the regions?
• How does the current economic development affect urban development and inequality among the constituent entities of the Russian Federation?
• How does the existing system of fiscal federalism in the Russian Federation influence the future urban development of the regions?
Expected results of the paper are the following:
• Understanding the interrelations between fiscal federalism and urban agglomerations.
• Defining the influence of the existing centralized model of fiscal federalism on the urban agglomerations in Russia.
• Formulation of recommendations for the further management of fiscal federalism for the development of urban agglomerations in Russia.
Research problem: in various academic works, a contradiction has been revealed regarding the influence of the model of fiscal federalism on the urban development of the Russian Federation agglomerations. On the one hand, scientists (Prud'homme, 1994; Tanzi 1996; Fukasuku & de Mello, 1998; Fishman & Gatti, 2002; Tanzi, 2002) argue that in countries with transitional or developing economies, the application of decentralized fiscal federalism is dangerous and can lead to macroeconomic instability, corruption and disturb the urban development of agglomerations. Other authors (Weingast, 1995; Enikolopov & Zhuravskaya, 2003; Zhuravskaya, 2010; Baklaeva, 2016; Ermakova 2020; Shvetsov, 2020) believe that in such a developing country like Russia, centralized fiscal federalism is ineffective and needs to be changed towards decentralized to enforce the development of urban agglomerations.
The purpose (goal) of this work is to analyze the impact of fiscal federalism on the development of the Russian Federation agglomerations.
To achieve this goal, the following tasks were formulated:
• Study the theoretical foundations of the development of urban agglomerations and fiscal federalism.
• Develop a model to study the impact of fiscal federalism on the development of urban agglomerations.
• Analyze the impact of fiscal federalism on the economic and urban development of Russian regions.
The object of the research is the state policy of regional urban development of the Russian Federation.
The subject of this research is the economics of fiscal federalism of the Russian Federation.
Research questions:
• How does the existing system of fiscal federalism in the Russian Federation affect the urban development of the regions?
• How does the current economic development affect urban development and inequality among the constituent entities of the Russian Federation?
• How does the existing system of fiscal federalism in the Russian Federation influence the future urban development of the regions?
Expected results of the paper are the following:
• Understanding the interrelations between fiscal federalism and urban agglomerations.
• Defining the influence of the existing centralized model of fiscal federalism on the urban agglomerations in Russia.
• Formulation of recommendations for the further management of fiscal federalism for the development of urban agglomerations in Russia.
This paper sheds light on the functioning of fiscal federalism, in particular, fiscal decentralization, as well as their impact on the development of regions, agglomerations and large cities. In addition, the research presents the modern context of the Russian Federation.
The purpose of this work is to analyze the impact of fiscal federalism on the development of the Russian Federation agglomerations. The theoretical base on the concepts of fiscal federalism, economic development of regions and agglomerations was analyzed. The research model was built based on the studies reviewed and represents an assessment of the impact of agglomerations factors and characteristics on the fiscal federalism model selection, which in turn affects urban and economic development of agglomerations. As a result, the research design could be characterized as a sequential linear structure. Based on secondary data, a quantitative empirical study was conducted. This study includes an assessment of the impact of the current level of fiscal decentralization on the development of urban agglomerations. An analysis of the fiscal decentralization and its impact on the development of urban agglomerations allows assess the existing economic regional and agglomeration development. The paper also explores the context of the Russian Federation.
Revenue decentralization and expenditure decentralization are not fully explained by economic factors. This study showed that, in relation to Russia, economic factors do not play a key role in fiscal decentralization, and political factors come to the fore. Moreover, it can be concluded that the distribution of subventions (which influence fiscal decentralization) occurs not only on the basis of economic factors, which can be explained by the centralized model of fiscal federalism. The desire for a centralized model of fiscal federalism and the strong influence of political factors can partly be explained by the desire to minimize the level of corruption, political system in Russia. Moreover, the appointment (not the election) of officials as well as the quality of regional governance issue could play a role in reducing the importance of economic factors.
Fiscal decentralization has influence on agglomeration and regional development, entities with less fiscal decentralization tends to have larger gross regional product on average according to empirical results. However, it is worth highlighting the issue that negative influence of fiscal decentralization increasing could be explained by the lack of incentives for regional development and high dependence on federal center management.
Practical implementations could be regarded from two perspectives. Firstly, this paper provides a methodology to estimate regional development, in particular, how to estimate the influence of fiscal decentralization in context of the Russian Federation. Secondly, this paper is 58
thought-provoking for policymakers, within the research the current situation is considered, as well the recommendations on the topic of the fiscal federalism and the development of urban agglomerations and regions are presented.
Limitations and further researches
Limitations comprise three aspects. First of all, political factors should be included in analysis in further researches to estimate its influence on fiscal decentralization in modern context. Secondly, further researches require the consideration of endogenity problem. Although there are several potential reasons for this lack of consensus on the empirical findings, one serious untreated problem that is common to most of this past literature has been the presence of endogeneity between fiscal decentralization and economic growth. A fair conclusion to be drawn from this literature is that the causal effect of fiscal decentralization on economic growth remains an open question. Beyond the many cases of contradictory findings, most of the previous empirical work on the question suffers from the potential endogeneity problem due to reverse causality and omitted variable bias. The third compelling issue for further research is that calculations are made only for 21 regions where agglomerations are represented. With this approach, information about all other regions is absent. An alternative approach could be to use all Russian regions and add a binary variable (0 if there are no agglomerations in the region, 1 if there are) to the model with all the main independent variables. Then it would be possible to draw conclusions about whether regions with agglomerations differ from all other regions in terms of fiscal federalism and economic growth.
The purpose of this work is to analyze the impact of fiscal federalism on the development of the Russian Federation agglomerations. The theoretical base on the concepts of fiscal federalism, economic development of regions and agglomerations was analyzed. The research model was built based on the studies reviewed and represents an assessment of the impact of agglomerations factors and characteristics on the fiscal federalism model selection, which in turn affects urban and economic development of agglomerations. As a result, the research design could be characterized as a sequential linear structure. Based on secondary data, a quantitative empirical study was conducted. This study includes an assessment of the impact of the current level of fiscal decentralization on the development of urban agglomerations. An analysis of the fiscal decentralization and its impact on the development of urban agglomerations allows assess the existing economic regional and agglomeration development. The paper also explores the context of the Russian Federation.
Revenue decentralization and expenditure decentralization are not fully explained by economic factors. This study showed that, in relation to Russia, economic factors do not play a key role in fiscal decentralization, and political factors come to the fore. Moreover, it can be concluded that the distribution of subventions (which influence fiscal decentralization) occurs not only on the basis of economic factors, which can be explained by the centralized model of fiscal federalism. The desire for a centralized model of fiscal federalism and the strong influence of political factors can partly be explained by the desire to minimize the level of corruption, political system in Russia. Moreover, the appointment (not the election) of officials as well as the quality of regional governance issue could play a role in reducing the importance of economic factors.
Fiscal decentralization has influence on agglomeration and regional development, entities with less fiscal decentralization tends to have larger gross regional product on average according to empirical results. However, it is worth highlighting the issue that negative influence of fiscal decentralization increasing could be explained by the lack of incentives for regional development and high dependence on federal center management.
Practical implementations could be regarded from two perspectives. Firstly, this paper provides a methodology to estimate regional development, in particular, how to estimate the influence of fiscal decentralization in context of the Russian Federation. Secondly, this paper is 58
thought-provoking for policymakers, within the research the current situation is considered, as well the recommendations on the topic of the fiscal federalism and the development of urban agglomerations and regions are presented.
Limitations and further researches
Limitations comprise three aspects. First of all, political factors should be included in analysis in further researches to estimate its influence on fiscal decentralization in modern context. Secondly, further researches require the consideration of endogenity problem. Although there are several potential reasons for this lack of consensus on the empirical findings, one serious untreated problem that is common to most of this past literature has been the presence of endogeneity between fiscal decentralization and economic growth. A fair conclusion to be drawn from this literature is that the causal effect of fiscal decentralization on economic growth remains an open question. Beyond the many cases of contradictory findings, most of the previous empirical work on the question suffers from the potential endogeneity problem due to reverse causality and omitted variable bias. The third compelling issue for further research is that calculations are made only for 21 regions where agglomerations are represented. With this approach, information about all other regions is absent. An alternative approach could be to use all Russian regions and add a binary variable (0 if there are no agglomerations in the region, 1 if there are) to the model with all the main independent variables. Then it would be possible to draw conclusions about whether regions with agglomerations differ from all other regions in terms of fiscal federalism and economic growth.
