Distribution of Responsibilities in a Federal State (Case of Russia)

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NES 20th Anniversary Conference, Dec 13-16, 2012 …

NES 20th Anniversary Conference, Dec 13-16, 2012
Distribution of Responsibilities in a Federal State (Case of Russia) (based on the article presented by Valery Makarov at the NES 20th Anniversary Conference).
Author: Valery Makarov

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  • 1. TOP - DOWN Coming from a central government and theory
  • 2. Distribution of responsibilities is a multi-task problem TheorySanjit Dhami (2005) “Optimal Distribution of Powers In AFederation: A Simple, Unified Framework.”, University ofLeicester, UK. Working Paper No. 05/24, July 2005.Two levels, four tasks: regional insurance, coarseness of federalinformation, internalisation of spillovers and “raiding ofcommons”.The paper examines six regimes of distribution of powers:autarky, centralization, unregulated devolution, regulateddevolution, direct democracy, and revenue maximizingleviathan.
  • 3. More theoryBesley T., Coate S. (2003) Centralized versus decentralizedprovision of local public goods: a political economy approach.Journal of Public Economics 87, 2611-2637.The centralization in provision of public goods ispreferable if a degree of spillovers is large.Lockwood B. (2004) Decentralization via Federal and UnitaryReferenda. Journal of Public Economics Theory, 6,(1) pp. 79 – 108.The paper investigates the trade – off betweenlocal provision of a project (good for localpolitical authorities) and centralized provision(less cost because of economy of scale, forexample, R&D).
  • 4. EvidenceZax J. S. (1988). “The Effects of Jurisdiction Types and Numbers on LocalPublic Finance”. In: Fiscal Federalism: Quantitative Studies. (1988). Editedby Harvey S. Rosen. The University of Chicago Press. 1988.Variety of population’s tastes & number of types of jurisdictions. Number of tiersJin H., Qian Y., and Weingast B. R. (2005) “RegionalDecentralization and Fiscal Incentives: Fedelalism,Chinese Style” Journal of Public Economics, v.89, #9-19September 2005.Citation from the paper: “China’s fiscal system has five hierarchicallevels of government: (1) central; (2) provincial; (3) prefecture; (4)county; and (5) township. Below the township level, the village is aninformal level of government. A municipality can be of the levels of aprovince, prefecture, or county; most municipalities are at theprefecture level. “
  • 5. How Chinese Jurisdictions are defined Federal level Local level Three tiers: More three tiers:1. Central government 1 4. Counties 21092. Provincial regions 31 5. Townships 448003. Prefectures 331 6. Villages 737400McGuckin R. and Dougherty S. (2003) “Restructuring ChineseEnterprises: The Effect of Federalism and Privatization Initiativeson Business Performance”. The Conference Board Research ReportR-1311-02-RR.
  • 6. Quantity of local governments in USA is greaterthen 82000 (Year 1985). See. Rosen, Harvey, S.(1988)3130 counties. Among them 17 have no localgovernments. 5 counties contain more then 200local governments. Cook County at the State ofIllinois has 513 of local jurisdictions.The local jurisdictions are municipalities, schooldistricts and special districts.In the period from 1962 to 1972 the number of localjurisdictions fell down from 91186 to 78218. Schooldistricts shrank 54,5%.More jurisdictions - greater competition andredundancy. Less jurisdictions – greater efficiencyand monopoly power. Where is optimum?
  • 7. Distribution of responsibilities is a multi-task problem Practice• Geistlinger M. «Federalism and Distribution of Powers. The distribution ofcompetences in the field of education» University of Salzburg, Department ofPublic Law.• Survey across Federalist countries, including Russia.• Ministry of Local Government and Regional Development (Norway).«The Government’s recommendations»• Responsibilities should be placed at the lowest effective level.• The county authority should not be developed into a superordinateauthority.• Changes in the distribution of responsibilities should help to reducebureaucracy.• The central government should have the responsibility forstandardized and rule – oriented responsibilities and for supervisoryresponsibilities.
  • 8. Planned Experiments of the Ministry Testing the alternative models:1. Organization of the County Governor and the county authority in a single administrative body – the single administration county authority2. Differentiation of municipal responsibilities, which means that certain municipalities are assigned one or more county or state responsibilities.
  • 9. Hierarchical Structure & Distribution of ResponsibilitiesCommission of Mr. Kozak.The law on local governments’responsibilities, to be introduced at I-st ofJanuary, 2006.The dead line for the reform of the localgovernance was year 2009.After that: two opposite processes
  • 10. Districts 1866 Towns 1097Districts with towns 330 Townships 1793 Villages 24427
  • 11. Russian Federation Formally according to the Constitution of Russian Federation there are three levels: Federal government 1 Subjects of Federation 89 Municipalities 24500 In fact Russia has or will have soon five (six) levels: Federal government 1 Federal districts 7 Subjects of Federation 89 (87) Municipal districts Townships Villages The reform of the local governance considers creating 24000-30000townships and villages in total. The townships and villages are at the same level but with a little bit different status.
  • 12. I take into account one important factor: the cost to provide public goods by assigning the responsibilities to a certain level of hierarchy of governments.1. How many levels?2. What size (in terms of population) of a jurisdiction?3. How many governments are under control of upper government?4. Which level is to place the provision of a certain public good?
  • 13. 0 5 10 15 20 16,8 16,0 12,9 10,6 6,9 5,8 5,3 5,2 4,4 4,3 4,2 3,7 3,33,0 1,4
  • 14. 0 50 100 150 200 250 294 300 232 80 73 70 66 62 57 54 52 48 47 4539 8
  • 15. 0 100 200 300 400 436 500 321 119 109 25 20 18 15 14 14 13 13 12 8 1,55
  • 16. 0 2 4 6 8 7,8 7,1 6,6 6,1 5,9 5,9 5,8 5,6 4,9 4,9 4,6 4,5 2,5
  • 17. 0 10 20 30 40 50 60 62,7 70 50,2 49,6 48,5 48,5 46,1 45,3 45,0 45,0 44,4 42,8 41,3 39,2
  • 18. Types of public goodsExtremes:(1) Public services on a lowest local level: cost = cN2(2) Pure public good (Samuelson): cost does not depend on NAll other public goods are between and shouldbe placed to appropriate level.
  • 19. 120 90 2,0305 Y = 0,4884 x 60 30 0 0,42 1,7 2,53 5 5 5,3 6,1 5,2 17,5 18,8 31,1
  • 20. 0 100 200 3000, 05 4000, 360, 690, 850, 951, 041, 211, 361, 492, 06 Y = 0,7478 x2, 592, 87 0,62653, 786, 62
  • 21. 0 1000 2000 300021 5, 7069 7, 1078 3, 4011 09 ,3 010 58 ,3 011 22 ,4 011 88 ,2 012 39 Y = 586,58 x ,1 013 89 ,8 015 0,2772 88 ,2 0
  • 22. Social Planner’s ProblemGiven: Amount of public goods to provide.Objective: To minimize the total cost ofpublic goods’ provision plus theexpenditures on maintaining of allgovernments (head tax minimization).Variables to find: Number of hierarchicallevels, size of all types of jurisdictions,what level to place a provision of a givenpublic good
  • 23. Optimal hierarchical structure (number of tiers andsubordinates) as trade off between two parameters:efficiency of control bodies & cost to maintain itsfunctioning.See, for example: Qian Yingyi (1994) “Incentives and Loss of Controlin an Optimal Hierarchy”. Review of Economic Studies,61(3):527-544.
  • 24. The paper considers an commercial organization thatowns a capital stock an uses a hierarchy to control theproduction. The optimal problem is to find number of tiers in thehierarchy and optimal quantity of workers is in each tier. The objective function is a revenue generated fromproduction activity. The trade off is between the two parameters: the numberof bureaucrats to control workers and efficiency of workingactivity under the control.
  • 25. There is sizable literature devoted to optimal design oftechnical devices, like memory for computers and others.See, for example: Jacob B. L., Chen P. M., Silverman S. R. and Mudge T. N.(1996) “An Analytical Model for Designing Memory Hierarchies”.IEEE Transactions of Computers, vol. 45, # 10, October 1996. In my case: (1) More tiers, more jurisdictions on the bottom –less expenditures to provide public services (cN2)(2) Less tiers, less jurisdictions – less expenditures to keepfunctioning of governments.(3) Responsibility to provide a certain public good should be assignedto a tier with maximal efficiency to produce. (Depends on power a incNa)
  • 26. In the presentation I formulate and solve relatively simpleoptimization problem where the only factor for Federal State’sexistence matters. Namely, it is size of population.Notations:N - total number of citizens in a country;с - costs of a government to provide one unit of a public good(actually public service) per a person;q - number of a hierarchical level (a tier) for a given government; q = 0,1, 2, …;kq - costs for keeping functioning of the government on hierarchicallevel q, under condition that the level is lowest;nq - quantity of governments under subordination of the level’s qgovernment;fq - total costs for provision of a public service (quantity is equal toone) for the whole population plus costs to keep all governmentsfunctioning;
  • 27. Objective function – total costs(under conditions: (1) all citizens are equal to each other, (2) everybody receives a unit of the publicservice.)c*n2 - costs for provision of a unit of public good (service) for npeople;kq*ln(nq) - costs to keep government of the level q functioning,under condition that the government controls nq governments oflower level Then if q = 0, one has total costs to provide one unit of publicgood and costs to keep the government functioning as f0 = k0 + c*N2. Here the first term is costs of government’s functioning(central one) and the second one is costs to provide public good forthe whole population.
  • 28. If q >= 1 to calculate total costs is a little bit more difficult.It is easy to do under assumption that all governments of a givenlevel control the same number of governments. The number nq indicate exactly that condition. The number does not depend on particular copy of the level’sq government.Namely, f1 = k0*ln(n0) + n0*(k1 + c*(N/n0)2) = k0*ln(n0) + n0*k1 + c*N2 / n0
  • 29. Under q = 2 total costs are: f2 = k0*ln(n0) + n0*k1*ln(n1) + n0*n1*k2 + c*N2 / n0*n1 Going along the induction one obtains the total costs forarbitrary number of levels q: fq = k0*ln(n0) + n0* k1*ln(n1) + n0*n1* k2* ln(n2) +…+ n0*n1*…*nq-2*kq-1*ln(nq-1) + n0*n1*…*nq-1*kq + c*N2 / n0*n1*…*nq-1
  • 30. Optimal number of government’s levels (tiers) The problem consists of finding the q*, which providesminimal total costs for provision of public good in quantity 1. Inother words: q* = arg Min(fq) Here Min is taken over q. But it is clear that functions fqdepend on the other parameters participating in the definition of thefunction, that is on N , с , kq , nq . Hence the number q* dependson the named parameters.
  • 31. Optimal quantity of inhabitances in a country What is more effective from the point of view of total costs toprovide public goods? To be in large Federal State or to create smaller state(probably federal one too). Much depends on relation between the numbers kq. Thepopulation has to compare the total costs (and hence amount of taxes)under staying in the initial Federation or secession in a certain stake. Namely, one has to compare {Min(fq)/n}, where n runs from 1 to N. The N can be equal to infinity.Min is taken over n and q. Here Min(fq)/n is a head tax in the caseof the size of population is equal to n. The country has “federal”structure if q*>0.
  • 32. Optimal size of a country with a fixed number of tiesLet us suppose that q is given. Then optimal size of population n*(q) is going to be dependent on the given q.The problem makes sense in some practical issues as we see below.
  • 33. Optimal number of government’s levels (tiers) 100one level 316two levels 10 000three levels 100 000four levels 1 000 000five levels 10 000 000 100 000 000 1 000 000 000 10 000 000 000
  • 34. Optimal quantity of inhabitances in a countryHead tax Total number of citizens in a country 100 316 104 105 106 107 108 109 1010
  • 35. Number of inhabitances in a municipality 158100 104 66 72 60 52 47 41 Total number of citizens in a country100 316 104 105 106 107 108 109 1010
  • 36. Each government has its appropriate public good Greater population –local government closer to people
  • 37. Population Number of the bottom governments 100 1 316 210 thousand 96100 thousand 1 521 1 million 16 940 10 millions 186 340100 millions 2 332 800 1 billion 10 billions
  • 38. • Alesina Alberto and Spolaore Enrico (1997), On the Number and Size of Nations, The Quarterly Journal of Economics, CXII, #4, November 1997, pp1027-1056.• McGuckin R. and Dougherty S. (2003) “Restructuring Chinese Enterprises: The Effect of Federalism and Privatization Initiatives on Business Performance”. The Conference Board Research Report R-1 311-02-RR
  • 39. • Besley T. and Coate Stephen (2003) “Centralized versus decentralized provision of local public goods; a political economy approach” Journal of Public Economics, 87 2611-2637• Bewley Truman F. (1981) “A Critique of Tiebout’s Theory of Local Public Expenditures”. Econometrica, vol. 49, #3, May, 1981.• McGuckin R. and Dougherty S. (2003) “Restructuring Chinese Enterprises: The Effect of Federalism and Privatization Initiatives on Business Performance”. The Conference Board Research Report R-1311-02-RR.
  • 40. • Samuelson, P. A. (1954) The Pure Theory of Public Expenditure. Review of Economics and Statistics, 37, 4.• Муниципальная власть №1 (2004).• Иноземцев В. Л. (2004) «Специфические особенности европейской социальной модели». Журнал Института Европы РАН Современная Европа, №1. Стр. 87-99.• Казаков А. И. (2004) Российский этнический федерализм: угроза целостности страны? ж. Федерализм, №1.• Евсеенко Т. Солопова Н. (2004) Конфедерация как форма государственного устройства.• ж. Федерализм, №1.• Boerzel T. A. and Hosti M. O. (2002) “Brussels between Bern and Berlin: Comparative Federalism meets the European Union”. Constitutionalism Web-Papers, Con WEB No. 2/2002. http://les1.man.ac.uk/conweb/• В работе Boerzel T. A. and Hosti M. O. (2002) приводится ряд аргументов в пользу того, что Европейский Союз идет в сторону Федеративного устройства согласительного (а не конкурентного) типа.
  • 41. • Qian Yingyi (1994) “Incentives and Loss of Control in an Optimal Hierarchy”. Review of Economic Studies, 61(3):527- 544.• Winter Eyal “Scapegoats and Optimal Allocation of Responsibility” Hebrew University of Jerusalem, The Economic Department and the Center for Rationality.• Jacob B. L., Chen P. M., Silverman S. R. and Mudge T. N. (1996) “An Analytical Model for Designing Memory Hierarchies” IEEE Transactions of Computers, vol. 45 NO 10 October 1996.• Rosen, Harvey, S. (1988) Introduction to “Fiscal Federalism: Quantitative Studies” Edited by Harvey S. Rosen. Pp. 1 – 4. The University of Chicago Press.• Zax, Jeffrey S. (1988) “The Effects of Jurisdiction Types and Numbers on Local Public Finance”. In “Fiscal Federalism: Quantitative Studies” Edited by Harvey S. Rosen. Pp. 79 – 106. The University of Chicago Press.• Численность населения Российской Федерации по городам, поселкам городского типа и районам на 1 января 2004г.»
  • 42. BOTTOM - UPNumerical experimentsAgent – based model of a countryEach level should invent its appropriatepublic good.