13 19. Population of retirement age (% of population, 1993data only) 20. Poverty headcount (% of population below regional poverty level, 1994 data only) 21. Crime rate (registered criminal offenses per 100,000 population) 22. Population density (1,000 population per square kilometer, 1994 data only) 23. Percent of total population living in rural locations (1994 data only) 24. Percent of industrial workers working in poor working conditions (1994 data only) This list of potential determinants is far from complete. In particular, we did not have access to and so did not use two important groups of indicators which reflect variation: the regional political environment and the impact of economic geography factors such as location17. This may be an important area for further research, which could explore, for instance, the links between the regional expenditure policy and local political dynamics. Over the years of reforms, Russia became quite politically heterogeneous with remarkable spatial variation in electoral preferences (Clem and Craumer, 1995; Gambaryan and Mau, 1997). Lavrov (1996a) provides an analysis of another important dimension of regional political setting -- the degree of centralization within regional budget systems. He found a positive correlation between the incidence of regional subsidies and the degree of centralization of regional finance in the hands of regional governments (as opposed to municipal and rayon governments). This phenomenon has a straightforward interpretation. Social and other basic public expenditures are funded in Russia mainly from local budgets (i.e. by municipal and rayon governments). Regional (i.e. provincial) budget expenditures are mainly focused on dealing with issues of special priority and regional importance. In the Russian political context, this often means the provision of budget support to major regional enterprises or to the most influential local interest groups, i.e. allocation of subsidies in the general sense. When more funds are concentrated at the regional level (i.e. the consolidated regional budget is more centralized), then, all other factors equal, the share of subsidies in total expenditures goes up."

# **IV. Major Trends in National Economy Expenditure of Regional Budgets**

A look at the dynamic processes in budgetary revenues and expenditures in the years 1992-95 as well as some other variables will set the stage for the regression analysis of the data.

Table 5 shows trends in average per capita national economy spending and per capita total expenditures of regional budgets. Both categories (the former a subset of the latter) peaked in 1993, after which both declined in 1994 and 1995, for a total decline over the period 1992-95 of 15-18%. The decline from the peak year, 1993, to the low year, 1995, was 32% for both national economy and total expenditures. As a percentage of total expenditures, per capita national economy expenditures have held steady at about 42-44%.

17 Polishchuk (1996) suggests that economic geography is an important determinant of regional govermnents' attitude to the reform process.

is This finding seems to be consistent with international experience. Thus, Davoodi and Zou (1996) found that in developing countries fiscal decentralization has a positive impact on economic growth when it brought about as a result of smaller state (provincial) government and larger local government.