ABSTRACT
A number of studies have identified the state of fiscal federalist relations as a major obstacle to successful economic transition in the Russian Federation.2 The current system offers weak incentives to regional and local levels of government for responsible budgetary management and the adoption of policies conducive to entrepreneurship, fair competition, and the development of new private firms. This finds reflection in a poor climate for business and investment in Russia compared to a number of other transition economies, including excessive entry barriers, licenses, fees, taxes, and various types of extortion.3 A major improvement of the climate for entrepreneurship and investment in Russia requires changes in the conditions under which regional and local Russian officials operate. Such is the motivation for a fundamental reform in fiscal federalist relations outlined in the new Economic Programme of the Russian government (Programma …, 2000).
