Russia's Fiscal Federalism

The theory of fiscal federalism is the front and hot issues in the field of public finance. Both government intervention and market mechanism often result in failure, including improvement of transaction costs and the loss of efficiency of resource allocation, but fiscal federalism is the institutional arrangements to solve this problem. Russia is a federal state, so it has characteristics of fiscal federalism in the financial system. Based on the historical evolution of Russian federalism, as well as the evolution of the financial system in Soviet times, combined with the division of fiscal revenue and expenditure between governments, as well as transfer payment system, we can come to the conclusion that Russia’s fiscal federalism contrary to the basic principle of fiscal federalism and fall into Market-disruption Federalism. Tax policy, public expenditure policy and regional policy have exacerbated the level of circulation cumulative cause and effect, thereby exacerbated the imbalance of regional economic development. Subgovernments lack fiscal autonomy and institutional constraints, induced opportunistic behavior, softened the budget constraints. Non-standard regional competition led to inter-regional trade barriers, hindered the flow of production factors, destroyed the unified economic space. However, fiscal federalism has played an irreplaceable role in safeguarding the unity of the Russian Federation and promoting economic development. Through the analysis of fiscal federalism in the United States and Germany, this paper presents proposals for reform of fiscal federalism in Russia.