Fiscal federalism and regional economic development in post -Soviet Russia

Is the distribution of federal transfers to the Russian regions more dependent on variations in regional bargaining power than on the economic objectives of the center? To the extent that such bargaining power is important, what are its sources and how do regional leaders make use of it? What do the answers to these questions imply for regional peace, stability, and economic development in the Russian Federation? I address these questions using a combination of game-theoretic modeling, statistical analysis, and case study research. Using a game-theoretic model I derive a number of propositions regarding the nature of the budgetary relationship between different types of regions and the center. Using statistical methods especially well-suited to deal with problems encountered in the Russian case (small number of cases, non-random sampling, a heterogeneous population, missing data), I subject the above propositions to a number of empirical tests. My results indicate that bargaining plays a smaller role in determining federal budgetary transfers than previously thought. However, there is evidence that regional lobbying affects off-budget transfers and investments. The results suggest that the regions that are most successful at attracting such off-budget investment are not, as commonly believed, ethnically-defined republics. Instead, regions that are successful at lobbying the center tend to be homogeneous regions that are have characterized by the presence of social capital. While the prospects for economic development in Russia, the prospects for the territorial stability of the Russian Federation are more positive than previous work suggests.