The Challenge of Expenditure-Assignment Reform in Russia

This paper is an examination of the critical role the assignment of expenditure responsibilities must play in building the Russian Federation. The fiscal federalism system and the expenditure assignments inherited from the Soviet Union were not truly decentralized. All the real decisions were made back in Moscow. Although subnational governments now have authority to create their own budgets, past processes and institutions still undermine local autonomy. However, the most serious threat to the Russian Federation comes from the lack of a stable assignment of responsibilities. Primarily for budgetary convenience, the federal government has jettisoned certain expenditure responsibilities onto oblast and rayon governments in the past two years, putting Russian intergovernmental relations on a perilous path. So far, the Parliament and the Executive have failed to recognize that a stable expenditure assignment is the first and necessary step in the design of a lasting system of intergovernmental fiscal relations. Instead, the political system has concentrated entirely on revenue assignments which have not endured. The author analyzes several sets of issues that must be addressed in the design of a stable assignment of expenditure responsibilities in the Russian Federation, including the reassignment of social expenditures and social safety-net responsibilities, the reassignment of capital spending responsibilities, and the divestiture of public services by state enterprises.