Academic journal article Asian Social Science

Assessment and Minimization of Risks to the Budgets of Russia's Regions

Academic journal article Asian Social Science

Assessment and Minimization of Risks to the Budgets of Russia's Regions

Article excerpt


This article examines the concept of budgetary risk, lays out specific approaches towards assessing risks to the fulfillment of regions' budgets and minimizing (managing) risks to the budget's revenue part, provides an assessment of risks to the budgetary system of an RF constituent, and summarizes the reasons behind them and possible ways of minimizing them. Based on data on an RF constituent's budget fulfillment, the author calculates the level of risk across groups of revenues and expenditures, conducts an analysis of the budgetary entropy of expenditure, and provides a rationale for the need to use budgetary risk indicators in planning out the regional budget reserve fund.

Keywords: sub-federal budget, budgetary process, budgetary risk, deficit, budget fulfillment, risk assessment methods, reserve fund

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Processes related to reforming Russia's budgetary system set for administrative authorities objectives aimed at boosting the efficacy of decisions made. The broadening of planning horizons, the crisis phenomena of recent years, as well as a number of other factors, provide a rationale for the emergence of budgetary risks as facts of the deviation of target indicators for the region's revenue and expenditure from the actual ones. This being the case, the determination of specific approaches towards identifying, assessing, and minimizing budgetary risks is considered a topical issue today.

Questions to the management of public revenue and expenditure in terms of risk and uncertainty are studied by many Russian and foreign scientists (Aart, 2014; Cortuka, 2013; Gaizatullin et al., 2014; Jeffrey & Miran, 2012; Lysandrou, 2013; Ferrari & Manzi, 2014; Bank & Suglobov, 2014).

At present, there is a lack of theoretical, methodological, and regulatory work on these crucial issues. Virtually all publications have pointed out that the very concept of budgetary risk remains open for discussion and debate. Besides, the introduction of various criteria for classifying these risks can be deemed excessive, while traditional methods for assessing them are not always applicable in the practice of planning out and fulfilling budgets.

2. Method

Science-based management measures fiscal risks with a view to practical applications suggest holding their numerical estimates. The choice of methods to assess fiscal risks is affected by the likelihood of quantitative assessments, the possibility of a qualitative assessment, the adequacy of the initial information.

The magnitude of the risk is measured, on the one hand, the average expectation, on the other hand the variability of possible results (revenues, expenses). Average expectation - a value of income and expenditure of the budget, which is due to the uncertain economic situation. Variability is a possible result of the degree of deviation of the expected value of income and expenditure budget from their mean value. Qualitative analysis allows to identify the causes of fiscal risks. Methods proposed by the authors estimate fiscal risks based on the use of statistical methods and includes three stages. In the first phase held approximation (smoothing of the curve) of the time series of statistical data on deviations of actual values of income and expenditures from their planned values. In order to smooth the time series used polynomials of second and third order.

In the second stage, using the coefficient of determination is calculated relative mean square error of approximation, expressed in percentage, largest of which assessed the risk budget.

At the third stage the entropy as a measure of the cost of uncertainty state spending budget system. One of the methods of optimal control of fiscal risks is to adjust the parameters so that the entropy costs remained constant or decreased.

3. Results

An essential characteristic of budgetary risk, in our view, is the unpredictability of whether the budget will be fulfilled in terms of revenue and expenditure - and whether there is going to be over fulfilling or underfinancing, at that. …

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