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Edited by David L. Sjoquist

State and Local Finances under Pressure explores the future of state and local government fiscal systems given the numerous pressures they face from economic, legal, technological, demographic and political forces. It explores how these multiple forces play out in terms of the changes state and local governments should and are likely to make.
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Alexander Libman and Michael Rochlitz

The introduction presents the topic of the book, the main research question, as well as our research strategy (a comparative study of Russia and China). It then highlights the contributions of our study to the literature, and briefly defines some key features of the Chinese and Russian systems of center–regional relations, before shortly presenting each chapter in turn, and summarizing the main features that can make a large federal state economically successful. Finally, China’s recent institutional and economic changes are briefly addressed, and the argument is introduced that rather than Russia becoming more like China (in order to increase economic performance), China might well become more like Russia in the future.

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Alexander Libman and Michael Rochlitz

This chapter compares the development of fiscal federalism in Russia and China. It looks at the evolution of expenditure and revenue decentralization in both countries, compares the allocation of tax legislation authority and tax collection responsibility, and briefly discusses the fiscal equalization mechanisms established in these two countries. The chapter also debates the role of sub-national public debt, which has emerged as a major problem in both China and Russia. Finally, it considers the role of non-tax revenue as a crucial source of income for Chinese provinces and sub-provincial territorial units, and its implications for the incentives of regional and local state officials. The chapter concludes that, while the Chinese fiscal constitution has a number of advantages compared to the Russian system (in particular the residual claim on revenues by sub-national governments), Russia and China are similar in several other aspects of the way fiscal federalism is organized.

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Alexander Libman and Michael Rochlitz

This chapter reviews the system of incentives established by the Russian and the Chinese central governments for their sub-national bureaucrats. After a historical overview of the organization of regional bureaucracy in both countries, it focuses on how selection and promotion of officials functioned in China and in Russia since the onset of reforms. It concludes that, while in China both formal and informal goals incentivized bureaucrats to focus on improving the economic performance of their region (although with a number of exceptions: thus, for high-level promotions in China, personal connections and networks gain crucial importance), in Russia incentives for bureaucrats make them care less about growth, and more about showing unconditional loyalty to the political leadership.

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Alexander Libman and Michael Rochlitz

This chapter reviews the tools and mechanisms Chinese and Russian governments use to extract, control and organize information about the performance of sub-national bureaucrats. It distinguishes among three key elements of information collection strategies: the establishment of specialized agencies (security agencies or control hierarchies); the encouragement of feedback from the public (both online and in form of complaints and petitions); and the use of new technologies. It shows that while China managed to gain a number of advantages vis-à-vis Russia in the past, currently the transformation of the Chinese state makes it more and more similar to Russia.

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Alexander Libman and Michael Rochlitz

The chapter discusses how sub-national governments function in Russia and in China. It shows that both countries feature substantial differences in the way sub-national politics is organized in different regions or provinces, and that these differences can be best described by using different angles of approach. In Russia, regional politics is organized along a number of sub-national political regimes (from isles of autocracy to more competitive and pluralist systems). In China, the central state does not allow a similar variation of institutions to form, but permits the emergence of local coalitions, which are frequently described using the concept of the “local state.” We show how in China this “local state” became an engine of economic growth during certain periods of its development, while Russia’s sub-national regimes have a highly heterogeneous impact on economic performance.

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Alexander Libman and Michael Rochlitz

After the previous chapters reviewed the key differences between China and Russia in terms of the design of center–periphery relations, this chapter will address the reasons for this divergence. It provides a catalogue of possible factors explaining why Russia and China part ways: from the way politics is organized at the national level (in particular the existence of vertical elite networks), to differences in ethnic composition and resource endowment, economic geography, and the beliefs and ideologies of central elites. It also discusses how and whether China learned from the Russian experience, and vice versa. Finally, the chapter looks at how historical path dependency shaped the features we described, cementing the particular Russian and Chinese models.

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Alexander Libman and Michael Rochlitz

This conclusion summarizes the main findings of the book. It also places the comparison of Russia and China into a broader comparative context, by comparing both countries to other large authoritarian states. Finally, it provides an outlook on the future development of China and Russia, and sums up possible directions for future research.

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Alexander Libman and Michael Rochlitz

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The Political Economy of Inter-Regional Fiscal Flows

Measurement, Determinants and Effects on Country Stability

Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé

Struggles over what a region receives, or should receive, from the budget of the central government are common to many countries. Discussions often focus on the measures of ‘net fiscal flows’ or ‘fiscal balances’ provided by the government or other actors. This unique book shows just how these flows are computed then interpreted and clarifies the often misunderstood economic and political motives that explain why some regions receive more monies than others.