Foreign Aid and Fiscal Policy

We study the tax-spend nexus for Russian regional budgets. Causal relationship running from taxing to spending is found, thus supporting the concept “tax and spend” suggested by M. Friedman. Next, elasticity of expenditure by revenue is estimated for a panel of 80 regional budgets basing on data for 2000—2017. Estimates are in the range of 0.72 to 0.78 (depending on the econometric technique), which exceeds elasticity for the federal budget more than twice. This evidences that fiscal policy at the sub-federal (as distinct from the federal) level has clear pro-cyclical nature. Besides, the largest sensitivity of expenditure to revenue shocks is found for the item “national economy”, implying marked adverse implications for economic growth. We suggest to mitigate this effect by modifying fiscal rules for sub-federal budgets. They are currently aimed primarily at enhancing fiscal discipline, with less emphasis on countercyclical policy, insulating economy from fiscal shocks.

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On the formation of a New Paradigm of fiscal Policy

Voprosy Ekonomiki ◽

10.32609/0042-8736-2013-6-152-158 ◽

2013 ◽

pp. 152-158 ◽

Cited By ~ 2

Author(s):

V. Senchagov

Keyword(s):

Public Finance ◽

Fiscal Policy ◽

Financial Crisis ◽

Global Financial Crisis ◽

Domestic Demand ◽

Real Economy ◽

New Paradigm ◽

Monetary Aggregate ◽

The Past ◽

The Global Financial Crisis

Due to Russia’s exit from the global financial crisis, the fiscal policy of withdrawing windfall spending has exhausted its potential. It is important to refocus public finance to the real economy and the expansion of domestic demand. For this goal there is sufficient, but not realized financial potential. The increase in fiscal spending in these areas is unlikely to lead to higher inflation, given its actual trend in the past decade relative to M2 monetary aggregate, but will directly affect the investment component of many underdeveloped sectors, as well as the volume of domestic production and consumer demand.

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