Capital Expenditures of The Russian Regions’ Budgets: Regulatory Problems

Abstract

Institutional approach to the discussion of public finance implies first of all the analysis of norms, regulating fiscal relations, their applications and their results. This paper analyses the problems of regulation of regional capital expenditures in Russia. Regional budgets’ capital expenditures are meant to ensure the renewal of the material basis of the economy and are one of the important factors of economic growth. An increase in the share of the investments in fixed assets is a condition for an overall increase in the efficiency of budget expenditures in terms of their multiplicative impact on the economy of the relevant territory. Meanwhile, in 2015–2019, the share of capital expenditures in the country’s regional budgets has decreased from more than 14% in 2015 to about 12% in 2018–2019; their share in the country's GDP has also decreased. The alarming downward trend in the share of capital expenditures in the total public subnational expenditures deserves close attention. The spatial distribution of regional budget investments is also uneven, dominated by a relatively small number of regions. Trying to explain the low investment activity of regional budgets, we have to state that the reason is not so much the lack of resources or low revenues. In the vast majority of cases, Russian regions neglect the possibilities of attracting debt financing, which is justified precisely for the purpose of financing budget investments. The revisal of regulatory norms, first of all the separation of the current and capital budgets, and therefore the differentiation of the current deficit and capital deficit along with the possibility of financing capital expenditures in whole or in part through borrowing, would allow to plan capital investments and borrowings in a coherent way, allowing to make maximum use of available financing opportunities to expand budgetary investments.