Most of Russia s regions are heavily dependent on fiscal transfers from the federal budget. Nearly one-half of the overall regional budget expenditures are spent on subsidies, so fiscal arrangements between federal and regional governments are key items on the policy agenda. Subsidies to manufacturers or industry are usually regional specific and not country-wide. A smaller share of subsidies are producer subsidies to agriculture and areas like the coal sector where money is directly provided to producers of different goods and services in exchange for price controls, sales within the region, and other explicit or implicit deals with local companies. The fact that in Russia funds are directly provided to producers for price controls, makes subsidization inefficient and does not allow for meaningful income support policy at the regional level.
Most regional subsidies are either compensational or politically motivated.
Compensation motives are clear in the case of housing and public transportation in which subsidies compensate for price controls. Agriculture is an example of a politically motivated subsidy determined by the strength of the agricultural lobby. Housing is a major political and economic problem of regional government, and more than one-half of all subsidies are for housing. In 1994, more than 60 percent of total housing costs were paid by regional governments. Housing subsidies are not equally distributed.