8 is, they are designed to have the local population as their major beneficiary. Producer subsidies, benefits from which supposed to remain mainly with their recipients in the enterprise sector, are less important. However, consumer subsidies in Russia are not disbursed directly to the final consumers of subsidized goods and services<sup>8</sup> but instead, to local enterprises involved in provision of these goods and services. Consumer subsidies (in housing and transportation, as well as food subsidies) are received by regional companies (e.g., housing maintenance firms, bus companies, food processing plants) mainly as compensation for regionally introduced price controls over their products and services sold to households. This manner of allocating subsidies is very distortive: it actually shifts an essential portion of a nominal subsidy value from consumers to producers because it does not set the right incentives either for rationalization of consumption by households or for productivity growth by producers. In addition, such instruments of subsidy provision do not allow effective targeting and therefore are counter-equalizing9. 9 The allocation of housing subsidies by regional governments may be considered a typical example of such a distortive institutional setting. There are two main recipients of housing subsidies: local utilities and local housing maintenance companies (World Bank, 1996b). The former receive subsidies primarily for purchases of fuel, including accumulation of seasonal inventories, and for capital repair. The latter are subsidized mainly to cover differences in tariffs for heat provided by local utilities as well as for general maintenance and repair of the housing stock. In addition, a substantial part of subsidies remains implicit because they are still funded through cross-subsidization of electricity and network gas tariffs. Subsidies related to financing of provision of heat and hot water to tenants prevail in the overall budget expenditure on housing, which amounts to 60-65% of the total budgeted subsidies. The inefficient system of subsidy allocation combined with the lack of metering of utility services and with poor corporate governance and regulation of utility companies lead to the accumulation of enornous efficiency losses in the housing sector. Energy consumption in a typical Russian apartnent building is 2-3 times higher than in market economies with comparable climatic conditions (Martinot, 1997). Wealthier households tend to have larger apartments and, thus, receive more in housing subsidies.

# m. **Comments on the** Data: **Peculiarities of Major Indicators, Availability, Sources**

The Russian budget reporting system does not provide statistically accurate data on budgeted subsidies as a part of the overall budget spending. The budget classification in use before 1995 was based on principles quite different from those since put in place. The old classification was basically the traditional Soviet classification with small modifications and it was focused on the aggregated sectoral breakdown of total expenditures. And the data on regional spending collected by the federal Ministry of Finance did not provide sufficient information to build a detailed functional classification of budget expenditure (Freinkman and Titov, 1994). The new budget classification introduced in 1995 is based on internationally recognized principles, and, when fully implemented, will fill this informational gap. However, at the time this paper was 8 Through cash allowance or food stamp types of instruments. 9 In particular, actual beneficiaries of livestock subsidies are firms in procurement and meat processing but not livestock producers (Serova and Melyukhina, 1995).