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In contrast, Russia’s richer regions-densely populated big cities like Moscow and St. This pattern is already evident in Europe’s poorer regions which have experienced a larger decline in mobility so far, exacerbating existing disparities ( Balakrishnnan et al, forthcoming).

The impact of crises is seldom evenly distributed, and this pandemic has had a disproportional impact on regions with a high share of employment in non-essential sectors or in small firms. Slowing convergence and rising economic disparities across regions within countries continue to attract interest during the ongoing COVID-19 pandemic. Finally, federal transfers in the aggregate tend to be procyclical and are also fairly unresponsive to shocks to regions’ own revenues. The Russian fiscal system offers degrees of redistribution and risk sharing of around 26 and 18 percent, respectively-with in-kind social transfers contributing the most.

Transfers from the federal budget to the regions provide some redistribution by reducing the dispersion in real per capita fiscal spending, but also tend to be associated with lower growth. Compared to other large countries with federal systems of government, Russia stands out with its high reliance on direct taxes as a revenue source for its regions.

The twin shocks of COVID-19 and lower oil prices appear to have impacted richer regions disproportionately. Socioeconomic outcomes remain worse in lagging regions despite faster growth and convergence in income levels. Regional disparities have fallen over the past two decades but remain relatively high. This paper examines how regional disparities have evolved in Russia and how Russia’s system of intergovernmental fiscal relations is managing these disparities.

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