Reserve Funds in Russian Regions: Factors of Formation and Efficiency Assessment

Abstract

The article considers the main characteristics of the Russian Federation subjects’ reserve funds analyzes the factors of their formation and assesses their effectiveness through the lens of the regions’ countercyclical fiscal policy. In theory, reserve funds serve not only as a source of additional budgetary funds, but also as an instrument of anti-crisis policy and financial stability. In practice, the reserve funds of Russian regions are believed not to fulfill the designated tasks, although the number of relevant studies is extremely limited. The latter determines the relevance of this study. The authors establish that the regional reserve fund of the subject as a public-law entity was established only in about half of the Russian regions and in many respects their creation coincided with the recovery growth after the crisis of 2009–2010. The theoretical provisions are also consistent with the fact that on average the reserve fund is owned by the entities whose economy is more dependent on the mining industry, has greater fiscal capacity, is less subsidized and has a lower level of debt. At the same time, greater fiscal capacity or debt sustainability can hardly be considered as factors in the creation of reserve funds. A number of models are constructed to assess the effectiveness of reserve funds of Russian regions from the point of view of countercyclical fiscal policy. It is concluded that reserve funds in their current form are ineffective for smoothing regional expenditures and maintaining overall fiscal stability. Nevertheless, many questions remain in this topic, including alternative model specifications and evaluation techniques. Based on the results obtained, the directions for further research are formulated.