Russian Regional Debt Sustainability Estimation

The article deals with estimation of Russia debt stability policy on regional level. Topicality of the issues is stipulated, on the one hand, by the fact that certain entities of the Russian Federation cannot support their spending liabilities by their own resources and have to use debt financing. On the other hand, budget restrictions of regions cannot be considered strict. The article analyzes ways of estimating debt stability, which are used in today's research and grounds the choice of assessing the function of fiscal response as a key method. By using cluster analysis through k-means method entities of the Russian Federation were divided by the degree of subsidy need and indicators of economic efficiency into three clusters: developed, medium and dependent. For the first two groups with the population of regions sufficient for correct model building the function of primary budget balance in response to debt accumulation is estimated. By results of assessing regressions by the generalized method of moments (two-step Arellano-Bond procedure) favorable primary budget balance was found for the developed group (considerable 10% impact of the accumulated debt), which proves stability of debt policy. As for medium regions considerable impact is not fixed in the model specification. However, if we take into account budget credits in the total amount of debt and transfers - in the budget balance, then debt policy of medium regions is estimated as stable at 5% level. It means that for medium regions stability of their debt is provided by federal support: such regions have a wide access to transfers from the federal center and do not need budget credits. Our hypothesis concerning soft budget restrictions for Russian regions was proved: cut in own earnings of the region affects the growth in inter-budget transfers without taking into account transfers for leveling. Findings of the research show instability of debt policy in many Russian regions and to a certain extent, models' ability to provide quantitative estimation of fiscal response and to identify problematic regions requiring individual recommendations.

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