Economic Analysis: Theory and Practice

Non-earmarked intergovernmental equalization transfers: Complete equalization or proportional reduction of gaps? Theory and evidence from the budgetary system of the Komi Republic

Vol. 17, Iss. 8, AUGUST 2018

Received: 3 April 2018

Received in revised form: 25 May 2018

Accepted: 21 June 2018

Available online: 29 August 2018


JEL Classification: H77

Pages: 1510–1527

Timushev E.N. Institute of Socio-Economic and Energy Problems of the North, Komi Science Center, Ural Branch of Russian Academy of Sciences, Syktyvkar, Komi Republic, Russian Federation

ORCID id: not available

Importance The article addresses the methodology for distribution of non-earmarked equalization transfers in the inter-budgetary relations of a multilevel budget system.
Objectives The aim is to formulate conclusions on preferred alignment mechanism with regard to a choice between a methodology with absolute equalization of fiscal capacity and a proportional methodology.
Methods During the study, I reviewed literature and normative base, applied general scientific methods, and elements of higher mathematics.
Results The paper proves that the method of distributing the non-earmarked equalization transfers with absolute equalization of specific income of the least secured budgets is technically complex; it contradicts the concept of fiscal capacity leveling, implies factors of subsidy allocation that indirectly relate to the tasks of alignment, and has properties, which are evaluated as disadvantages by the theory of inter-budget alignment. The alternative is a proportional method. The calculated distribution of grants under the offered variant of the proportional method, using the budget system data of the Komi Republic showed an increase in the budget security and related specific subsidies of the least secured budgets, and, at the same time, a reduction in the final levels of budget security of leader budgets.
Conclusions The proportional method is able to solve alignment problems, observes the principle of growth of grants for the least secured budgets and restrictions imposed by the budget legislation of the Russian Federation.

Keywords: intergovernmental relations, intergovernmental transfer, equalization grant, absolute equalization, proportional method


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