Patron’s largess and regional borrowing under authoritarian rule

Abstract

Patrons in authoritarian governance systems are expected to spread the state’s largess selectively, channeling the most rewards within their client networks. This empirical study evaluates whether the congruence between regional leadership and the leadership at the federal level in the Russian Federation influences the distribution of regional borrowing. The findings show that one of the distribution channels of largess to the regions is through budget credits, a form of heavily subsidized long-term loans that the Kremlin controls. Due to a symbiotic nature of the linkage between the central state and regional clients in this patronage system, largess accrues to the regions that offer greater support to the party of power in their regional legislatures. However, this linkage is present only in relatively more contested regions of the federation and not in the regions where the party of power holds a majority of legislative seats. Empirical results remain significant even when regional wealth and fiscal need variables are considered.

Notes

1 Under President Putin’s watch, the Russian Federation moved from a relatively decentralized collective of federal regions in the 1990s, several of which pressed for greater autonomy and even secession, to a firmly controlled authoritarian system of federal dominance over the regions in late 2000s to 2010s.

2 Internally, the political system also moved away from the highly fragmented field of almost one hundred political parties of the 1990s to four parties that are currently in the federal parliament (Communists and Just Russia on the left; a centrist, but tilting distinctively to the right, United Russia–often referred to as the “party of power”; with Liberal Democrats firmly on the right) (Laverty 2015; Gel’man 2008:2015; Reuter 2010; Oversloot and Verheul 2006; Lesage 1993; Perkins 2008; S. White 2007). This was a result of both a natural maturation of post-Soviet institutions of governance in new Russia as well as deliberate harassment and restraining of opposition parties from the national and regional political spheres (Bacon 2012; Reuter 2013; Buckley et al. 2014; Perkins 2008; Smyth 2014; S. White 2007; Zygar 2016).

3 Evidence from a variety of political contexts suggests that political cycles and fiscal policy are highly correlated (Baskaran et al. 2016; Bastida, Beyaert, and Benito 2013; Prado-Lorenzo, García-Sánchez, and Cuadrado-Ballesteros 2014; Sáez 2016), and that certain political structures and the nature of political leadership may hinder transparency, government accountability practices, and reforms (Anderson 2018; Balaguer-Coll, Prior, and Tortosa-Ausina 2016; Dowley 2006; Samaratunge, Alam, and Teicher 2008). Research also shows that both electoral and partisan logics shape access to services, resource allocation, and borrowing choices of subnational governments in emerging contexts (Bastida, Beyaert, and Benito 2013; Benton and Smith 2017; Blunt, Turner, and Lindroth 2012; Naseemullah and Chhibber 2018; Sáez 2016; Sharma 2012).

4 The focus on political parties and regional legislatures instead of regional governors is deliberate. This is so because from 2004–2012 regional governors in Russia were appointed. Governors then were elected from 2012 onwards, though most were “stage-managed” and continue to be so (Teague 2014). The only reasonable center of power in Russia’s regions during the time we review, therefore, is the regional legislature.

5 This aligns closely with insights in Kopecky (2006) who assumes a top-down dependence of political parties in the Federal Duma, Russia’s legislature, on the state. In that sense, regional public officials, akin to their colleagues at the central government level, are dependent on patron’s preferences. “Public offices are stuffed by people who live from politics rather than for politics” (2006, 253; italics in the original). Another insight is that a patron and political parties in Russia can build governance systems as they see it best for them, from scratch, given weak or non-existent governance systems after the collapse of communist rule. “In that sense, parties in post-communist countries have been in a unique and strong position to define the rules of the game so as to suit their private ends” (Kopecky 2006:253). Finally, while the state has an upper hand in its relationship with the party of power, regional elites may nevertheless seek to extract greater rent due to the still developing nature and stature of institutions of governance. “In other words, there are relatively few institutions within the post-communist state that are legitimate and strong enough to keep the partisan government in check and to limit the reach of partisanship within state structures. In this respect, again, the state structures in contemporary Eastern European states offer parties more possibilities for rent seeking behavior than similar structures in most contemporary West European countries” (Kopecky 2006:253–254).

6 See the articles of Russia’s Constitution here: http://www.constitution.ru/en/10003000-04.htm. Due to signs of serial autocorrelation for the outcomes of interest, competing lagged and unlagged functional forms for borrowing measures are used in the models. This influences the final sample sizes in the regression models that we report in the tables.

7 For example, if a party were to receive 50% of seats, and the next two parties received 15% and 10% respectively, the index value would be 50^2 + 15^2 + 10^2 = 2,825. If a party had 80% of seats, and the next two had 6% and 3% respectively, the index value would have been 6,445.

8 Other studies show that regional governments will seek to learn from each other by sending delegations to the regions that are perceived to be skillful in gaining resources from the central government (Sharafutdinova and Turovsky 2017; Turovsky and Gaivoronsky 2017). Also, even with a strong central government in the Kremlin, a certain level of ‘personalism’ and ‘non-compliance’ remains (Burkhardt 2021).

9 Alternative measurement forms for debt variables are total subnational (regional plus municipal) capital market debt as % of gross regional product (GRP) and total budget credits as % of GRP. Results from negative binomial panel regression models for the covariates of these alternative variables of interest remain consistent and continue to support key conclusions. Additional results are omitted for brevity.

10 Binary graphs for capital market and budget credits vs. top-three concentration mix in the regional legislature, respectively, are also in line with ex ante expectations (additional graphs are omitted for brevity).

11 Given the scale of the concentration mix measure, which ranges from 749 to 8322, a standard deviation change interpretation is more sensible for this variable.

12 As an alternative, additional, outcome measure, which combines both capital market and budget credit levels in a single scale, we assess an interval variable for percent of regional budget credits over total regional borrowing levels. Along this scale, regions closer to 0% are predominantly reliant on capital market borrowing and regions closer to 100% are primarily reliant on budgetary borrowing. For ease of analytical interpretations, we collapsed this interval measure by deciles into 10 categories and estimated negative binomial regression models. Collapsing the percentage scale into 10 bins does not affect the findings in the study as this is simply a rescaling of the outcome measure to a less finer measurement scale. The rescaling though helps with interpretations of the magnitude of impact relative to 10s of percent in panel negative binomial (count) regression models. These regression results (omitted for brevity) continue to offer support for the expectation that largess accrues to the regions through budget credits.

Additional information

Notes on contributors

Temirlan T. Moldogaziev

Temirlan T. Moldogaziev is Associate Professor in the School of Public Policy at the Pennsylvania State University. His primary research interests are in public financial management, capital market and financial innovations, regional and urban governance, and subnational financial management.

Mikhail Ivonchyk

Mikhail Ivonchyk is Assistant Professor in the Department of Public Administration & Policy, Rockefeller College of Public Affairs & Policy at SUNY Albany. His teaching and research interests are in the areas of public finance, debt management, fiscal policy, budgeting process and agenda setting.

Kenneth A. Kriz

Kenneth A. Kriz is the Distinguished Professor of Public Administration at the University of Illinois at Springfield. Dr. Kriz conducts research focusing on subnational debt policy and administration, public pension fund management, government financial risk management, economic and revenue forecasting, and behavioral public finance.