The Efficiency of Regional Government Expenditure in the Russian Federation

Russia features complex and rather centralized structure of public finances. The federation controls the majority of tax revenues, partially allocated to the regions, and the public expenditure in respect of regional public goods is done via direct regional expenditure, as well as via federal programs and federal grants, depending on which level of administration is responsible for the said public good. In any case these expenditures need to be efficient partially due to limited resources of the regions and partially due to cost-limiting approach of the Russian public authorities. Numerous studies analyzed the efficiency of public expenditures at the level of central, regional or local governments; however, there was only limited and partial analysis of public finances of Russian regions, without detailed estimates of efficiency of expenditures or comparison across geographically close regions. Therefore, authors intend to cover this gap in scientific literature. The objective of this paper is to estimate the technical efficiency of regional public expenditure, with special emphasis on regions of Russian Federation located in Volga Federal District in the period 2013-2017. Volga Federal District includes fourteen administrative regions, all of which feature developed industry and infrastructure but vary in terms of social development. To evaluate the technical efficiency of public expenditures in the regions of Volga Federal District in the period 2013-2017, the authors used the Data Envelopment Analysis (DEA) methodology to process data, following Charnes, et al. (1978). The DEA model inputs comprise total expenditure for education and total expenditure for health care of each region, while two sets of outputs consist of (1) teacher-student ratio at all levels of education and number of medical doctors per 10,000 inhabitants and (2) number of students at all levels of education and number of clinic visits per doctor per year. The DEA model identified significant differences in the efficiency of expenditure on education and health care across regions of Volga Federal District; however, there was no expected correspondence with the size and economic development of the regions (regions with larger population and economy were expected to be more efficient, but the model suggests otherwise). The authors further examine the potential causes of regional public expenditure in the examined sectors of education and health care.