Fiscal imbalance and economic growth of Russia
<b>Subject</b> This article examines the impact of the Federal budget deficit on Russia's economic growth and the increasing crowding-out effect. <br></br> <b>Objectives</b> The study attempts to trace the relationship between the non-oil deficit of the Federal budget and the growth of Russia's economy within Q1, 2005 to Q1, 2018 (53 quarterly observations). <br></br> <b>Methods</b> The study uses the Solow-Swan growth model supplemented by the <i>Deficit</i> and <i>Interest Expense</i> variables. The econometric methodology includes tests for collinearity and stationarity to select explanatory variables. Due to different degree of integratedness of variables, the Autoregressive Distributed Lag model is used. <br></br> <b>Results</b> Bounds tests point to a positive long-term relationship between fiscal imbalance and economic growth. One-percent growth of the former was followed by 0,1-percent growth of the latter. Debt service charges, while having the expected symbol, statistically are insignificant. As for the short-run dynamics, it took economic agents three and a half quarters to restore the balance between dependent and independent variables. <br></br> <b>Conclusions</b> The study found no evidence of crowding-out. Rather, the debt burden was offset by the capital expenditure financed by borrowed funds that increased Russia's national income.