Influence of Intergovernmental Transfers on Regional Incomes in Russia

Given the current conditions of intensifying sanctions, scarcity of resources and the start of a structural transformation of the Russian economy, the task of a reassessment of the efficiency of existing tools of economic policy, so that these tools can be realigned, becomes vital. In this publication, we study the influence of intergovernmental budget transfers, subsidies in particular, on regional economic growth in Russia. We perform the analysis on the full sample of relevant Russian regions and on three subsamples of regions, differing in the degrees of regional budgets’ reliance on transfers. Additionally, we divide regions into two groups, based on the shares of natural resources extraction in their economies. Our analysis shows that increases in the shares of incoming transfers in regional budgets are followed by increases in the rates of growth of GRP per capita – however, this works only for regions with a medium degree of transfer reliance. Such regions having high shares of employment in extraction intensifies the positive effect of transfers. Increases in subsidies to regional budgets are also followed by faster growth – but only in regions with a medium to high reliance on incoming transfers; for regions with a low reliance on transfers the effect of subsidies is insignificant. Among the control variables we use, the share of capital investment in GRP and the share of employed with a higher education also correspond to higher rates of economic growth, but again – only for regions with a medium degree of reliance on incoming transfers. Using the spatial Durbin model, we control for spatial effects between regions. Overall, our analysis shows that the system of intergovernmental transfers currently in place in Russia promotes growth only for regions with a medium level of reliance on transfers