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Title: An Empirical Analysis of the Debt Sustainability of Russian Regions
Abstract: This study examines the effects of a moderate increase in government borrowing over an approximately 10-year period, beginning in 2010, on the viability of debt in 11 Russian regions. By identifying Euclidean distance budget constraints and performing cluster analysis, the current study seeks to evaluate the debt sustainability of the budget for the Russian region. This study is based on the hierarchical cluster analysis methodology, which enables separation of object accumulation regions from aggregate data and grouping of those regions into homogeneous segments. This study’s main hypothesis is that by employing this method, it is possible to improve the precision of the values that set the upper bound on budgetary restrictions in a region’s financial system. This study is based on a database of statistical, financial, and economic indicators of the Russian economy, using open data from the Federal State Statistics Service. The calculations include about 45 macroeconomic indicators that show the ratios of the financial system’s socioeconomic development in the area. The method for evaluating the debt sustainability of budget policy described in the paper demonstrates the necessity of calculating six indicators and setting debt ceilings for the regions of each cluster. It concludes that there is a need to lessen the heavy debt loads carried by 46% of the Northwestern Federal District’s regions. Confidence intervals for the debt limit indicate that levels of around 5% of the debt-to-GDP ratio and about 43% of the debt-to-revenue ratio may be where the negative growth effect of high debt may begin. The findings show that St. Petersburg city, the Leningrad region, and the Kaliningrad region have a high level of debt sustainability. The findings add to the case for debt reduction in the Komi Republic, the Republic of Karelia, the region of Arkhangelsk, and the region of Pskov from the standpoint of state debt policy. The overall conclusion of the study boils down to the necessity of reducing the debt burden on the budgets of some SFZO regions as well as the necessity of changing the Russian Federation’s budget code’s upper limits of debt, which are uniformly set for all regions, to differentiated values of public domestic debt, taking the study’s findings into consideration.
Keywords: debt sustainability; budget system; regions of Russia; indicators; local government debt; budget constraint; debt limit
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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