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Journal section "Public finances"

Regional budget for 2015–2017: doing away with deficit or doing away with development?

Povarova A.I.

1 (37), 2015

Povarova A.I. Regional budget for 2015–2017: doing away with deficit or doing away with development?. Economic and Social Changes: Facts, Trends, Forecast, 2015, no. 1 (37), pp. 150-170. DOI: 10.15838/esc/2015.1.37.10

DOI: 10.15838/esc/2015.1.37.10

Abstract   |   Authors   |   References
Regional budget in the Vologda Oblast for 2015–2017 was formed under difficult socioeconomic conditions caused not only by a longstanding dependence of Russia’s economy and its budget system on the external economic environment, but also by a number of new factors associated with the aggravation of geopolitical tensions and the application of sectoral sanctions by Western countries. Despite an uncertainty in economic development trends, the new budget is announced to be deficitfree. It would seem that the balance of revenues and expenditures, a fundamental principle of the budget system, has been achieved. However, an analysis of the expenditure part of the budget shows that the balance is achieved at the expense of introducing the austerity regime followed by the restriction of all directions of funding. For 2015–2017 the share of the regional budget expenditures in GRP will decrease to 9.8% vs. 13.6% in 2014. If macroeconomic dynamics maintains its downward trend, such fiscal policy in the long term will suppress the economy even more significantly and will ultimately lead to the taxable capacity reduction. Under the conditions of economic activity slowdown, even if the budget is balanced, it will not be possible to neutralize the cyclical risks connected with the receipt of profit tax from the metallurgical and chemical industries that are integrated into the world economy and act as the major budget revenue generating industries in the region. Simple calculations prove that at the current high level of debt load it will be extremely difficult for the government to overcome the dependence on borrowed funds; therefore, it seems rather doubtful that the budget balance over the forecast period can be achieved. The author analyzes several laws on the regional budget*16 and comes to a conclusion that the fiscal policy pursued by the federal government is flawed because it focuses on fiscal functions rather than on stimulating and regulating functions that promote economic growth. The growing problems at the regional level will sooner or later require that the center make definite decisions. The article substantiates practical recommendations for stabilizing the regional and local budget systems; this stabilization should be accompanied by the adoption of measures to adjust fiscal policy

Keywords

regional budget, deficit, loans, debt load, fiscal policy adjustment

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