Subject This article considers the issues related to the accumulation of public debt of the Russian Federation subjects. Objectives To test for debt sustainability at the regional level, we use a model-based approach proposed by Bohn and the panel data of the Russian Federation fifty constituent entities for 2006–2017. Bohn's test looks for positive reaction of the primary surplus to the debt at the start of the period. Such a reaction confirms the debtor's fiscal solvency. Methods The article estimates the model of panel data with fixed effects by least squares with dummy variables involving diagnostic tests. Results Bohn's test resulted in negative and statistically insignificant reaction, which indicated fiscal insolvency at the regional level. The primary surplus reacts positively to the regional output and negatively to temporary budget expenditures. Conclusions Fiscal insolvency is not manifested in real default on securities and expenditure commitments of regional governments. It is absorbed by the federal budget through the system of soft budget constraints at both levels of government.
Keywords: fiscal sustainability, Bohn's test
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