10 evidence that short-term budget loans to local enterprises were partially reflected in 1993-94 as 'bther expenditures" instead of being reported as 'loans" Second, and even more importantly, some remaining forms of government assistance are deliberately excluded from the regional budget documents. The main types of these off-budget transfers are spending from extrabudgetary funds and various tax benefits, granted by local authorities'<sup>2</sup> . In addition, as mentioned earlier, the Russian budget data are reported on a cash basis, and therefore do not reflect the volume of accumulated government payables to local producers with regard to budgeted subsidies. The existing budget statistics provide neither data on accrual budget expenditure nor separate information on the accumulated stock of budget arrears.

(iii) An additional caveat regarding the data has to do with peculiarities of the Russian reporting on the federal budget transfers to regions. The existing reporting system reflects only conventional budget transfers and does not capture various regional benefits allocated through the preferential tax agreements between some of the regions and the Federal Government. As the case of Tatarstan shows, a few regions, which enjoyed a special fiscal regime within the federation, received most of their federal support through such off-budget channels.

All budgetary data used in this paper were taken from Russian Ministry of Finance sources. For all years data were deflated by regional CPIs to remove the influence of the variation in price levels in the different regions of Russia. Note, however, that some variation was already present in the regional price levels by 1991. The absence of a suitable deflator for this year makes it impossible to correct for this variation. But the fact that price controls were, by and large, still in effect in 1991 heavily restricted price variation and renders this a good base year.<sup>13</sup> In 1995, after the introduction of new budget classifications, the term 'hational economy" was no longer in Russian Ministry of Finance usage. The term is used in this analysis in relation to 1995 for purposes of convenience and comparability to earlier years, and the 'hational economy" indicator for 1995 was created from reported expenditures on agriculture and fishing ('Agriculture'); housing ('Housing'); industry, energy and construction (industry'); and transportation, roads, communications and telecommunications ("Transportation").

A similar reclassification was done regarding the total regional budget revenues in 1995. To render this indicator comparable with those for the previous years, it was determined as the sum of pre-transfer (i.e. own) budget revenues of regional governments and the total federal transfers received. Thus, it should be noted that 1995 data are not fully comparable with those for previous years because of the different budget classifications. 14 12 And wealthie **r** egions tend to have larger off-budget spending on subsidies and transfers (Freinkman and Titov, 1994). See also Table 4 in the previous section.

**13** However, already in 1991 a few regions in the Far North were characterized by both a much higher price level and higher nominal wages. There are no data available to eliminate biases associated with such 1991 price differences. But the total effect of these initial distortions seems to be limited, especially in later years when accumulated price changes eroded the initial price variation across regions.

**14** In addition, because the new budget classification was in use in 1995 for the first time, there was probably additional noise in the data resulting from various mistakes associated with misclassification.