9 being prepared, only preliminary data on the 1995 budget execution were available, and these were also not sufficiently detailed.

Thus, instead of precise data on regional budget spending on subsidies, the paper utilizes the available broad measures of subsidy incidence which characterize important components of the total subsidy expenditure but still do not provide comprehensive coverage of the total regional spending on these purposes. Three primary budget items were used as broad measures: national economy expenditures (the major, most informative indicator); total investments; and budget loans. National economy expenditures, as defined by the Russian budget classification in 1992-94, were expenditures on agriculture, housing, transportation, and other sectors (including food price subsidies<sup>10</sup> ). While far from perfect, all of these indicators are still informative enough to reflect both major trends in regional fiscal policies and the scale of market distortions imposed by the provision of subsidies. The selection of these indicators should be considered as a reasonable compromise between a demand for more accurate measurement of fiscal processes and actual constraints associated with the undeveloped state of the Russian fiscal statistics.

The major potential distortions deriving from the analysis of these "imperfect" indicators are the following: (i) While most of the budget spending reported under the heading 'hational economy" represented in fact various subsidies and transfers to corresponding sectors of the regional economy, some portion of the actual expenditures under this heading could have a different functional purpose. The most important example is probably spending on housing, which covers both housing subsidies (the dominant item) and expenditures on urban development (up to 15% of the total housing expenditures). Similarly, expenditures on agriculture include some relatively small amounts spent on administration and provision of public services to this sector (e.g. veterinary services). While by our estimates 80-85% of the total subsidized loans funded by regional governments were granted to local enterprises, the remaining part was allocated among non-commercial entities (such as universities) and therefore cannot be treated as a subsidy. Such non-subsidy components of predominantly subsidy-type expenditures may vary in their significance across the regions, which could bring about biases in statistical results.'<sup>1</sup> (ii) At the same time, a portion of the overall subsidies funded by regional governments is not covered by available indicators and therefore is not reflected in this study. This is caused, first, by the fact that some newly established, less transparent forms of government financial assistance to enterprises and households are not reflected under the item 'hational economy" and are included in the category 'bther expenditures" which in 1994, the last year of the old classification, increased to 8.4% of total regional budget spending. For instance, there is some '° Major subsidized commodities are bread, milk and meat. 1 1 In particular, 'Total investments" is the least reliable measure selected in our study because it combines all types of budget investments -- public and quasi-public investments (local infrastructure, housing, social assets) and investment grants to commercial entities. It is known that the former is substantially larger than the latter and that investment grants outside the agricultural sector have been relatively small recently. It was decided to keep this indicator in the study basically for comparative purposes, i.e. in order to figure out how, if at all, the determinants of subsidies and investments differ.