Subnational Budget Rules: Foreign and Russian Experience

The article discusses the rules and restrictions for subnational budgets in Russia and some federative countries, as well as the current level of debt burden of the respective public authority. According to the authors, in the world practice, modern budget rules for the regions are characterized by flexible built-in mechanisms that allow them to adapt quickly to external and internal shocks without making changes in their basic design. This ensures not only fiscal sustainability of public finances at the regional level, but also stability of budget legislation and its law enforcement practice. The authors analyze the arguments pro and contra the application of conditional budget rules, that is, the features of binding certain restrictions of budget parameters (volume of expenditures, regional budget deficit, public debt) to such criteria as the level of transfer dependence, the amount of accumulated debt level, the dynamics of GRP growth rates etc. The analysis of international and Russian practice has led to the conclusion that budgetary rules should not be differentiated based on the level of transfer dependence, that there is a need for tighter restrictions for regions with high debt burden, and that budget rules should be given sufficient flexibility. In order to ensure effective application of new budget rules, the authors propose limiting the practice of making decisions at the federal level that directly affect the expenditure obligations of the regions, and introducing a system of built-in mechanisms to increase fiscal discipline, including encouraging regions that implement responsible fiscal policies and applying sanctions for violating budget rules.