The Influence of Intergovernmental Fiscal Relations on Regional Economic Growth

The article examines the impact on regional economic growth from intraregional fiscal decentralization and the structure of regional financial assistance to local public budgets. For this purpose, a panel regression was arrived at using the data from Russia’s regions for 2011–2021 or for 2015– 2021. The resulting calculations demonstrate that the relationship between the degree of decentralization of expenditures and the rate of economic growth is ∩-shaped. While an increase in the decentralization of expenditures can have a positive effect on economic growth, that holds true only for those regions in which the initial level of decentralized expenditures is significantly below 30%. However, there is no significant relationship between the degree of decentralization of taxation and the rate of economic growth. The impact on GRP growth of individual instruments for providing financial assistance to local budgets turned out to be different for wealthier and low-income regions. In low-income regions, regional financial assistance has a negative effect on economic growth; that is, economic growth in such regions should be fostered by increasing the revenue of the local budgets (or revenue base). In addition, for low-income regions, targeted financial assistance tends to dampen economic growth; therefore, non-targeted financial assistance to such regions is preferable. Capital subsidies accelerate economic growth, and this effect is more pronounced in wealthier regions. However, neither increasing tax sharing by a few percentage points, nor an overall increase in the level of tax decentralization, showed a significant impact on economic growth.