|Russia features complex and rather centralized structure of public finances. The federation controls the majority of tax revenues, partially allocated to the regions, and the public expenditure in respect of regional public goods is done via direct regional expenditure, as well as via federal programs and federal grants, depending on which level of administration is responsible for the said public good. In any case these expenditures need to be efficient partially due to limited resources of the regions and partially due to cost-limiting approach of the Russian public authorities.
Numerous studies analyzed the efficiency of public expenditures at the level of central, regional or local governments (Afonso and Fernandes, 2003; Melkers and Willoughby, 2005; Afonso and Scaglioni, 2005; De Borge and Naper, 2006; Afonso and Fernandes, 2008; Chebukhanova, Kuznetsova, 2014; Hodzic, Jurlina Alibegovic, Becic, 2017). However, there was only limited and partial analysis of public finances of Russian regions, without detailed estimates of efficiency of expenditures or comparison across geographically close regions (Fattahov, 2006; Shipunova, 2009; Frolova, 2011). The authors intend to cover this gap.
The objective of this paper is to explore the efficiency of regional government expenditure, with special emphasis on regions of Russian Federation located in Volga Federal District in the period 2007 ̵ 2016. Volga Federal District includes fourteen regions (Republic of Bashkortostan, Chuvash Republic, Mari El Republic, Republic of Mordovia, Republic of Tatarstan, Udmurt Republic, Perm Krai, Kirov Oblast, Nizhny Novgorod Oblast, Orenburg Oblast, Penza Oblast, Samara Oblast, Saratov Oblast, Ulyanovsk Oblast), all of which feature developed industry and infrastructure but vary in terms of social development.
While the Constitution of Russia and federal laws allocate the public functions among federal, joint federal-regional, regional and two levels of municipal jurisdictions, the control and financing of those functions remain centralized to a significant extent. The authors focus on social sector (education, health care and social welfare), where the responsibility and financing are partially decentralized. In 2016, 61.17% of the consolidated regional budgets were spent on social sector, along with 36.04% of the federal budget. However, the breakdown of these amounts differ, the federal budget mainly spending on pensions, allowances and support for civil and military servicepersons, while the regions allocate significant amounts on primary and secondary education and health.
To evaluate the efficiency of public expenditures and the average deviation level in the regions of Volga Federal District in the period 2005 ̵ 2016, the Data Envelopment Analysis (DEA) methodology is used to process data. Farnell laid the foundations for the DEA model in 1957, which was later developed by Charnes, et al. (1978). This method identifies the most efficient units in a given set, without assuming any type of functional relationship between inputs and outputs. The DEA model inputs comprise total expenditure for education, health care and social welfare of each region, while outputs consist of population density, gross regional product per capita and expected longevity in each region. To obtain meaningful results, additional input and output variables will be used in this analysis.
We expect the DEA model to identify differences in the efficiency of expenditure on education, health care and social protection across regions of Volga Federal District, corresponding with the size and economic development of the regions (regions with larger population and economy are expected to be more efficient). The authors further examine the potential causes of public expenditure in the examined sectors of education, health care and social welfare and develop the respective recommendations for increase of expenditure efficiency.