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On the theory of fiscal feudalism and intergovernmental relations

Emerging business model in the Russian Federation suggests establishing stable relations between the federal center and the regions of the Russian Federation, as well as between regions and municipalities in the delineation of the fiscal authority, expenditure and income, rational distribution and redistribution of the last among all levels of the budget system of the Russian Federation . In this case, the basic condition improve intergovernmental relations is the full implementation of fiscal federalism.

Scientific definition of “federalism” in works by Russian and foreign authors as a form of government with a certain system of basic principles of organization and operation, and the Federation – a real institutional mechanism of its organization and functioning. The main criterion of the institutional mechanism of organization and functioning of federalism is equal constitutional status of the Federation.

In this regard the establishment in Russia of a system of fiscal relations, able to actively contribute to the sustainable development of the country depends on how well the “fiscal federalism” will reflect the very essence of federalism. Carefully developed system of fiscal federalism is designed to achieve the balance of territorial decentralization and national unity. In this case, the word “centralization” and “decentralization” denote two divergent process. Centralization is manifest in recognizing the integrity of the government in the vertical distribution of powers between the federation and its constituent parts, while maintaining the absolute supremacy of the Federation. The founder of the “decentralization theorem” is an American scientist W. Oates. Decentralization serves as separation or division of jurisdiction, powers and resources in accordance with the constitutional and legal status of the individual parts of the state (the subjects of decentralization), as well as independence, balance and overall (total) cost budgets of different levels. The subjects of decentralization are the authorities of the subjects of the Russian Federation and the authorities in the municipalities.

Based on the foregoing, the most universal features that characterize fiscal federalism as the balance of centralization and decentralization, one can imagine how the principles of federalism:

  •     coexistence of multiple levels of a common fiscal system, corresponding to levels of state and territorial-administrative-territorial structure of the country;
  • legislative or contractual allocation of powers between levels of government and fixing the responsibility of each of them for specific areas and activities on their territory;
  • availability and practical use of the concepts of sustainable (they can be fixed by statutory) the magnitude of the necessary and sufficient budget to implement its cost of each level of government its exclusive authority and responsibility;
  • application of reliable and universally accepted (legal) ways to “piece” coping with the territorial adjustments for normative values relevant expenditure budgets;
  • use of the criterion is sufficient to cover fixed costs of regulatory distributed to budgets of all levels of government (federal, state, local) sources of revenue (taxes);
  • selection in the classification of federal and regional budgets of special items of financing such directions of the regional policy of a federal state, as compensation for the lower budgets insufficiency of their own funds to cover the legal costs established, implementation of programs to support the selective development of individual regions and the adoption of emergency measures to support depressed areas, etc . This law establishes procedures justify the costs involved, their distribution not only between budgets (some regions and municipalities), but also between the final beneficiaries – and funded) budget organizations, groups.

Thus, fiscal federalism is characterized not only the relationship between the different levels of power and control over the distribution of income and expenditure, the degree of centralization and decentralization, and covers all stages of the budget process and the levels of the budget system.

As the principles of “fiscal federalism” we recommend the use of requirements to ensure the effectiveness of “fiscal federalism”:

  • distribution and legal consolidation between federal, sub-federal and local levels of responsibility for the performance of certain social and economic functions (requiring validity of the distribution costs);
  • definition and legal consolidation income budgets of all levels with the resource potential of the area (property, minerals, etc.) previously received State support, etc. (requirements validity of the distribution of income);
  • development and consolidation of the legal obligation to complete the territorial aspect of the federal budget (income and expenditure), which reflects both the direct and intergovernmental fiscal flows, and the spatial distribution of all classification positions of the federal budget for all subjects (territorial requirement of transparency of fiscal relations);
  • definition and criteria for legal consolidation of intergovernmental organizations and tax flows, based on the territorial structure of expenditure and consolidated financial potential areas (requiring reasonable and the variety of forms of selective support of some regions);
  • development and consolidation of the legal procedures for assessment and management of fiscal impact of draft laws and regulations of the government (the requirement to ensure fiscal sustainability of the system);
  • development and consolidation of legal mechanisms and procedures for the implementation of all of the above provisions (requiring procedural security).

In our view, a number of requirements (demand transparency territorial fiscal relations and the reasonableness requirement and the diversity of selective support to particular regions) should be supplemented relations with local authorities.

Due to the fact that before any government must improve the living standards of their citizens, and the model of fiscal federalism based on the concepts of “justice” that is, the possibility of providing consistently pursued through fiscal policy minimum level of state and municipal services for the population at the expense of the respective budgets. We consider it necessary to supplement the list of principles demand social justice (social orientation), ie, the approximation parameters in the lives of at least the average level.

Of the variety of principles of fiscal federalism, in our opinion, should be made as basic as follows:

  • high degree of autonomy of the budgets of all levels and a clear division of responsibility for budget support;
  • Volume of financial resources at the federal, regional and local levels with authority and the functions they perform;
  • operation of a “fair” fiscal equalization mechanism lagging areas to the minimum necessary, aimed at developing their economic initiative and prevents dependency.

Based on the above definitions can be argued that the operation of the principles of fiscal federalism should resolve contradictions of federalism and to ensure smooth circulation of financial resources in the system of cooperation between the Russian Federation and federal entities, state agencies with local governments, corporations and individuals. In this case, the goals of fiscal federalism are to achieve the balance of federal and territorial interests, smoothing the asymmetry in the socio-economic development of the territories.

Achieving these goals requires the following tasks:

  • streamlining the budget unit – the formation of the system of distribution of rights, resources and responsibilities in the territorial division, which would ensure the fulfillment of obligations to the public at a minimum needs, regardless of the area of residence (economic efficiency and social justice);
  • rational division of powers between levels of government;
  • providing every level of government is sufficient and stable material, financial resources for the implementation of its mandate;
  • activation of the incentive function to increase the economic potential, and as a result, raise the necessary revenue in the field;
  • management of regional finances by creating a three-tier system of regulation, including a mandatory, reference standards and initiative.

Fiscal federalism is the basis, on which the intergovernmental relations – relations over the distribution of costs and revenues for various levels of the budget system and financial assistance from higher lower budgets. At the same time, the very fiscal federalism and its underlying principles are most clearly expressed and realized in the system of intergovernmental relations.

Obviously, intergovernmental relations can not be identified with the totality of relations of fiscal federalism, but they have their integral part.

In many models of intergovernmental relations in the Russian Federation and its legal basis in the last ten years developing spontaneously, which in turn prevents the organs of state power and local self government to effectively implement its function and is one of the main causes of many conflicts between different levels of government.

The essence of intergovernmental relations reveal principles, some of which was mounted art. 129 RF Budget Code, the Federal Law of 13.07.98 № 145-FZ
1) the distribution and consolidation of budget expenditures for certain levels of the budget system of the Russian Federation;
2) the definition (consolidation) on a permanent basis on uniform standards and redistribution of the temporal and differentiated standards of income levels of the budget system of the Russian Federation;
3) equality of the rights of subjects of the Russian Federation budget, equal temper municipal budget;
4) equalization of fiscal capacity of Russian regions, municipalities, which in turn requires a balanced budget and the total (cumulative) cost budgets;
5) the equality of all budgets of the Russian Federation in their relations with the federal budget, local budgets equality in relations with the budgets of subjects of the Russian Federation.

Based on the principles, intergovernmental relations is the process of providing a comparable level of public consumption regardless of the place of residence of citizens and holding certain budgetary policy and the basic functions of intergovernmental relations are equalization schemes, where it is less than the minimum required (ensuring compliance with constitutional and other public social security throughout the country) level, and to promote capacity-income products in the territory, as well as regional and effective spending budget. The existence of these functions according to many researchers.

It is known that the state influences on the formation of inter-budgetary relations by changing the principles, techniques, methods of budget revenues and expenditures, the mechanisms of the budget process. Thus it adjusts to established budgetary proportion regulates transmission channels and directions budget flows, said the mechanisms of financial assistance and thus provides for the regulation of the budgetary system.

© AG Khashba St. Petersburg State University of Engineering and Economics

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