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Financial Journal Vol.13 No.4 2021

CONTENTS

Ivan N. Timofeev
Meeting the Challenge of Economic Sanctions: Russian Legislative and Institutional Perspective, p. 8-2
Abstract
The article deals with the Russian experience of countering foreign economic sanctions. It makes a special stress on the legislative and institutional perspectives of the Russian practice. The key point implies that, despite significant innovations, Russian institutional design of counter-sanctions policy still suffers from a number of shortcomings. A tentative list includes a lack of coherence of key concepts, unsophisticated distribution of power among different governmental agencies, legal gaps in terms of civil and criminal liability for violation of the Russian counter-sanctions legislation etc. The article provides insights into key Russian legal documents as well as the practice of their implementation. Besides that, the research aims at filling the gap in sanctions literature, related to the disbalance between studies of initiators’ policies and targets of sanctions: research on the policy of initiator states prevail over that on the target states. Inquiry into the Russian practice may contribute to the studies of target states’ policies under sanctions.
Keywords: economic sanctions, special economic measures, Russian Ministry of Finance, Bank of Russia, institutions
JEL: F51
Funding: The article was prepared on the basis of the results of research work carried out within the framework of state assignment 092-00002-20-00 commissioned by the Ministry of Finance of the Russian Federation.
For citation: Timofeev I.N. Meeting the Challenge of Economic Sanctions: Russian Legislative and Institutional Perspective. Financial Journal, 2021, vol. 13, no. 4, pp. 8–23 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-8-23.

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Polina V. Bakulina, Ksenia A. Kuzmina
China’s Policy of Economic Sanctions: Legislation and Enforcement, p. 24-38
Abstract
This article aims at analyzing the People’s Republic of China’s sanctions policy. The authors put special emphasis on the review of the current Chinese legislation on countering foreign unilateral measures targeting China. The emergence of a legal anti-sanctions framework in China is a development of 2020–2021, driven by the growing number of sanctions against China imposed by the U.S. and its allies against the background of trade war and global strategic competition. At the official level, Beijing remains vocal in condemning unilateral and extraterritorial sanctions by certain countries as violations of international law. Despite that, even before the current large-scale confrontation with the U.S., Chinese policymakers have used restrictive measures against third countries, though they have been traditionally adopted in an informal and opaque manner. Those measures have mostly been used as retaliation for certain acts of other states viewed by China as threats to its sovereignty and territorial integrity, and they have been specifically refined to maximize the impact on the target country while minimizing the damage to the domestic economy. The growing number of anti-China sanctions by the U.S. and its allies based on special legal instruments prompted the PRC to follow suit and create its own framework for introducing countermeasures and blocking mechanisms, although their implementation procedures still largely remain intransparent. China’s first steps were to officially introduce individual restrictions, but the persisting confrontational trends in PRC’s relations with the West might bring about formal or informal broadening of Chinese restrictions to transnational corporations and sectors of economy and promote further formalization of sanctions regimes.
Keywords: sanctions, legal regulations in China, China’s sanctions policy, anti-China sanctions
JEL: F51
For citation: Bakulina P.V., Kuzmina K.A. China’s Policy of Economic Sanctions: Legislation and Enforcement. Financial Journal, 2021, vol. 13, no. 4, pp. 24–38 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-24-38

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Yulia S. Timofeeva
US Sanctions Against Financial Companies: Key Features, p. 39-51
Abstract
Sanctions constitute one of the most demanded instruments of the U.S. foreign policy agencies in affecting foreign adversaries. The use of sanctions is also a challenge for commercial companies, given the growing use of financial sanctions and enforcement measures by the U.S. government. Banks have been increasingly vulnerable to these risks; they are among the most frequent targets of restrictive and enforcement measures by the U.S. and tend to pay much more in comparison with other sectors in terms of financial penalties. This study is based on the analysis of 54 cases of US financial penalties against banks as well as individual cases of US sectoral and blocking sanctions. The article aims at understanding the reasons why this type of financial organizations is vulnerable to US sanctions, the key features of US sanctions against them, and possible application of US sanctions in this direction in the future. The results of the study demonstrate that the heightened sanctions risks that banks face are attributed to their functional connections with the governments under sanctions, the nature of banking business and some intraorganizational factors. Moreover, the inclination of financial companies pressured by sanctions to accept requirements of the U.S. indicates the effectiveness of application of sanctions against commercial ventures.
Keywords: sanctions, secondary sanctions, banks, sanctions risk, sanctions compliance
JEL: F51
For citation: Timofeeva Yu.S. US Sanctions Against Financial Companies: Key Features. Financial Journal, 2021, vol. 13, no. 4, pp. 39–51 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-39-51

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Anastasia B. Likhacheva
On the Strategic Effects of Unilateral Sanctions: Russian Experience, p. 52-66
Abstract
Much of the academic debate about the consequences of sanctions has been focused on their direct impact or on collateral damage to the bilateral relationship between the issuer of sanctions and the target of sanctions, reflecting the understanding of sanctions as a foreign policy tool. However, an analysis of the Russian experience allows one to raise new questions about the role of sanctions instruments in international affairs. Of course, in the short term, the priority is a policy aimed at minimizing the risks of direct sanctions. Nevertheless, Russia has been under extensive US and EU sanctions for more than seven years, and began to face individual restrictions even earlier. In this regard, the analysis of sanctions reactions can clearly be transferred to the mid- and long-term plane. The analysis of the regulatory legal acts and particular regional and sectoral strategies of Moscow shows that the target countries have been rearranging their international priorities under the threat of further sanctions pressure, both formal and informal. Thus, sanctions are serving not only as a tool of punishment or deterrence, but also as a signaling function in a new meaning — not only demonstrating disapproval of the target country’s policy, but signaling that the planning of long-term development projects is associated with increased risks. Therefore, the complex consequences of sanctions go far beyond the immediate response of the target countries, which is reflected in the industry overview of Russian sanctions pressure adaptation strategies. A particular example of such a transformation, considered in this article, is the sanctions policy in the post-Soviet space—both on the part of individual countries of the region in relation to Russia, and in terms of countermeasures on the part of the Russian Federation.
Keywords: sanctions, Russia, diversification, sanction effects, import substitution
JEL: F01, F20
Acknowledgments: The author expresses gratitude to participants of the HSE student research project 2021 “Sanctions Effects and National Development Strategies: The Example of Russia” Maria Onishchik, Alexander Panferov, Artur Shamkhalov, Maxim Tkach, Karl Tois, and Valeria Yelkina for their assistance in forming the base of sanctions laws and regulations as well as measures to support individual industries. 
For citation: Likhacheva A.B. On the Strategic Effects of Unilateral Sanctions: Russian Experience. Financial Journal, 2021, vol. 13, no. 4, pp. 52–66 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-52-66.

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Viktor S. Utkin, Yury V. Kuznetsov
Cellular Companies as a Model of a Mechanism for Reducing Sanctions Risks for Business, p. 67-74
Abstract
Economic sanctions, including financial ones, will be increasingly used in the practice of international relations in the foreseeable future as an instrument of pressure of some states or interstate associations on others. This creates incentives for the search and implementation of financial innovations aimed at reducing sanctions risks for businesses. The article demonstrates that the impetus for the creation of some important modern financial instruments and infrastructures was the attempts of states to legislatively or administratively regulate the market. The case of sanctions is likely to be no exception. One of the possible models for minimizing sanctions pressure on businesses can be the legal form of a protected cell company. It have been a financial innovation that originally emerged in the captive insurance industry and its objective was, among other things, to reduce the regulatory burden. Structures similar to protected cellular companies can potentially create the possibility to make the operations of national businesses of target countries opaque for external actors (financial regulators and monitoring agencies) that enforce sanctions. In the same time this model preserves the control of the target country’s own jurisdiction and transparency of business for its regulators. In essence, it creates a kind quasi-offshore legal regime, which, unlike traditional internal offshore zones, is designed to mitigate not internal, but external regulatory pressure.
Keywords: economic sanctions, financial sanctions, reducing of the regulatory burden, protected cell company, financial innovation
JEL: F51, F39, G28, G38
For citation: Utkin V.S., Kuznetsov Yu.V. Cellular Companies as a Model of a Mechanism for Reducing Sanctions Risks for Business. Financial Journal, 2021, vol. 13, no. 4, pp. 67–74 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-67-74

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Julia A. Tarasova, Ekaterina S. Fevraleva
Forecasting of Bankruptcy: Evidence from Insurance Companies in Russia, p. 75-90
Abstract
This work is devoted to creating a model which could predict bankruptcy of Russian insurance companies. The aim of the study is to build a model based on panel data; its final version should have a good predictive power. Said topic is relevant because the number of revoked licenses has changed a lot over the past few years — this situation may influence both insurance organizations and the population in a negative way. The paper reflects the main characteristics of bankruptcy as well as analyzes the bankruptcy prediction models which have been made by various authors since the 20th century. In the practical part of the study, an econometric analysis of the collected data was carried out and a logit model was built. The model’s predictive power was tested on a sample of insurers. In addition, a random forest algorithm and a binary classification tree algorithm were used. As a result, it was discovered that the volume of insurance premiums to net profit ratio, which could be calculated only for insurers, and financial stability coefficients influence insurance companies’ bankruptcy the most. Further research can be expanded by including new, more sophisticated methods, such as neural networks or boosting.
Keywords: bankruptcy, insurance organizations, logit model, binary classification tree algorithm, random forest method
JEL: C51, G22
For citation: Tarasova Ju.A., Fevraleva E.S. Forecasting of Bankruptcy: Evidence from Insurance Companies in Russia. Financial Journal, 2021, vol. 13, no. 4, pp. 75–90 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-75-90.

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Alfiya F. Vasilyeva
Approaches to Modelling Exposure at Default for the Entire Life of the Asset, p. 91-109
Abstract
This paper is devoted to developing an optimal model for assessing the default requirement (EAD) of assets over the entire life of a financial instrument in accordance with the requirements of IFRS 9 “Financial instruments”. The EAD for the whole life of a financial instrument is a set of estimates of EAD values from the first to the last year during the life of the asset. Two models are used for evaluating EAD under agreements with a set limit (for example, a credit line, overdraft) and under guarantees and letters of credit: the EAD model for balance sheet financial instruments (applied to the balance sheet part) and the credit conversion factor (CCF) model (applied to the off-balance sheet part). The approach to CCF modeling is described in the second part of the study. This model was developed based on a real bank portfolio of assets, using data which were collected at the beginning of the 2017. These days the topic of the paper is highly acute for both commercial banks that has experienced the problem of improving credit risk assessment models due to the requirements that have appeared to them owing to the introduction of IFRS 9 since January 1, 2018, and regulatory authorities as well, etc.
Keywords: IFRS 9, exposure at default, EAD, CCF, expected credit losses, credit risk assessment
JEL: B40, G21, F65
For citation: Vasilyeva A.F. Approaches to Modelling Exposure at Default for the Entire Life of the Asset. Financial Journal, 2021, vol. 13, no. 4, pp. 91–109 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-91-109.

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Vera V. Levina
Problems of Regional Participatory Budgeting Practices, p. 110-121
Abstract
This paper discusses the various aspects of participatory budgeting as a regional practice. Using Tula region as the example, the author analyzes the problems associated with the selection of projects, the involvement of residents in the process of preparing projects, and the organization of financing. The study has mainly used general scientific methods of systems-structural and structural-functional analysis as well as comparative research. It is established that the consolidation of the participants’ interests is a prerequisite for the preparation and selection of a larger number of participatory projects. Reasons for the prevalence of educational projects and the institutional mechanisms of their preparation are shown. In addition, the article addresses the role of the residents’ interest in the implementation of projects as an intermediate link between their awareness and involvement. Based on the analysis, it is concluded that involvement management and budget planning optimization have a multidirectional effect on the modernization of proactive budgeting mechanisms. As a result, significant amounts of subsidies from regional budgets have been found to have an ambiguous effect on the efficiency of involving residents in the processes of proactive budgeting. Recommendations for improving regional practices of participatory budgeting are formulated; these include control of the number of participants in the preparation of projects and voting, more attention to mechanisms for coordinating the interests of participants in proactive budgeting, and modernization of the mechanism for distributing subsidies. The article proposes the optimal balance of citizen involvement in participatory budgeting and co-financing of their initiatives from municipal and regional budgets.
Keywords: regional budget, local budget, participatory budgeting, subsidies, involvement
JEL: Н72, Н77
For citation: Levina V.V. Problems of Regional Participatory Budgeting Practices. Problems of Regional Participatory Budgeting Practices. Financial Journal, 2021, vol. 13, no. 4, pp. 110–121 (In Russ.). DOI: 10.31107/2075-1990-2021-4-110-121. 

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Yuriy V. Belousov, Olga I. Timofeeva
Methodological Aspects of Compiling Open Budget Rankings, p. 122-138
Abstract
Budget transparency is an effective tool in improving the quality of public budget executions. Ranking countries, regions and municipalities based on budget transparency is of interest for scientists and professionals in the whole world, including Russia. Methodologies behind budget transparency are a rather complex tool, the quality of which largely affects the results. This paper analyzes the available and applied ranking methodologies — in particular, the Open Budget Index (OBI) by the International Budget Partnership (IBP), transparency indices of local budgets in Kazakhstan and Croatia, and the ranking of the Russian Federation’s constituent territories by the level of budget data openness. During the analysis we identified the methodological principles of each of the considered approaches, their differences and similarities. Special attention was paid to problematic issues of the International Budget Partnership’s methodology. It is especially important to specify these problems, as the IBP methodology is a model in measuring the level of budget transparency. By using the ranking of Russian regions in terms of budget transparency levels, we demonstrate how to use special techniques and methods targeted at improving the quality of managing public fiscal performance.
Keywords: public finance, regional finance, budget, open (transparent) budget, open budget data, open budget index, budget transparency ranking
JEL: H61, H87, R50
For citation: Belousov Yu.V., Timofeeva O.I. Methodological Aspects of Compiling Open Budget Rankings. Financial Journal, 2021, vol. 13, no. 4, pp. 122–138. https://doi.org/10.31107/2075-1990-2021-4-122-138.

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Financial Journal Vol.13 No.3 2021

CONTENTS

Victor L. Dostov, Pavel M. Shust, Pavel V. Pimenov
Prospects for the Development of Payment Institutions in Russia, p. 8-26
Abstract
The current structure of the Russian payment market is almost ten years old—in the summer of 2011, the Federal Law “On the National Payment System” was adopted. This was the start of a “Russian noncash miracle,” a fantastic increase of non-cash payments in retail turnover. Having solved numerous problems, the new market structure today also needs to be updated. During this decade, the range of challenges faced by the industry and the regulator has changed significantly: those are unbalanced competition, the presence of types of companies with similar functionality on the market, complex licensing procedures, and so on. This article aims to consider a new perspective of market transformation based on the introduction of payment institution into the Russian system. The article analyzes the current and future types of payments; examines in detail the structure of the Russian payment market, its advantages and disadvantages; and describes the payment institution, identifying the risks and prospects of its introduction into Russian banking practice. The authors suggest the feasibility of introducing payment institutions as a more functional version of the payment agents operating in Russia to simplify the complex structure of payment service providers. Payment institutions should become conduits for new payment services (such as PISP and AISP). In addition, payment institutions should be supervised by the regulator. At the same time, the introduction of a new type of companies should not put existing players at a disadvantage. Therefore, existing credit institutions and payment agents should have the ability to easily change their status and transform into payment institutions and back again.
Keywords: payment institutions, revised Payment Services Directive, the payment system of the Bank of Russia, payments as a commercial service, regulation of payment services
JEL: G21, G23
For citation: Dostov V.I., Shust P.M., Pimenov P.V. Prospects for the Development of Payment Institutions in Russia. Financial Journal, 2021, vol. 13, no. 3, pp. 8–26 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-8-26.

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Alexey V. Maslov
Development of New Payment Systems in Russia Similar to a CLS Analogue, p. 27-37
Abstract
This paper examines the need to create new infrastructural payment and financial institutions in Russia to ensure greater independence of the Russian financial market from any external factors as well as the efficiency of the market for ruble conversion transactions and cross-border payments. The issue of creating an analogue of Continuous Linked Settlement (CLS) in Moscow on the basis of the Interstate Bank, or establishing a new payment system, is highly relevant. Almost seven years ago, on September 22, 2014, the CLS international payment system postponed the inclusion of the Russian ruble in its list of currencies, scheduled for November of that year. The prospect of such inclusion in the coming years remains very weak. In March 2014, VISA and MasterCard payment systems stopped servicing cards of several Russian Banks in retail outlets and ATMs. Amendments to the Federal Law “On the National Payment System” were prepared and promptly adopted in order to provide infrastructure and information support for the processes of making money transfers within Russia. On July 23, 2014, the National Payment Cards System was launched, which was tasked with creating an operational and clearing center for processing domestic transactions with cards of the international payment systems and promoting the national payment card. This experience should be used to create new payment systems in order to secure the efficiency of cross-border payments and currency conversion operations. This step will extend the sphere of ruble convertibility, ensure an increase in the status of the ruble and its importance in international trade, and bring Russia closer to practical steps to create a regional international financial center. To expand settlements in rubles on the part of non-residents, it is necessary to strive to perform trade and financial transactions in rubles and keep ruble savings, which is impossible without a market for ruble conversion transactions. The author examines the prospects for creating a new payment system, in particular with participation of the CIS and BRICS countries.
Keywords: CLS, analogue of CLS in Russia, Interstate Bank, the sphere of ruble convertibility
JEL: G21, G23
For citation: Maslov A.V. Development of New Payment Systems in Russia Similar to a CLS Analogue. Financial Journal, 2021, vol. 13, no. 3, pp. 27–37 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-27-37.

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Sergey V. Shkodinsky, Mihail N. Dudin, Daler I. Usmanov
Analysis and Assessment of Cyberthreats to the National Financial System of Russia in the Digital Economy, p. 38-53
Abstract
The relevance of the topic of this scientific article lies in the need for a theoretical and practical study of the problem of escalating numbers and quality of cyber threats and attacks committed against institutions of the Russian financial system, implying their safe and sustainable development being ensured in Industry 4.0. The purpose of the article is a comprehensive analysis of cyberthreats facing the national financial system of the Russian Federation in the context of economy digitalization. The subject of scientific research is the processes of ensuring national security of the Russian Federation’s financial system in the digital economy. In the process of research, the authors relied on general scientific methods (observation, comparison, measurement, analysis and synthesis, as well as logical reasoning), specific scientific methods (static analysis, expert assessments, and graphical method), and the foresight method. The validity and reliability of the results of scientific research are ensured by the correctness and rigor of the logic and research scheme construction. Scientific and practical research of Russian and foreign scientists in the field of cybersecurity, digital economy and public administration was used as a methodological and fundamental basis of the study. Various approaches to key categories—digital sovereignty and cyberwar—have been systematized, and it has been established that the most pressing financial challenges and threats to the digital economy of the Russian Federation are as follows: hacker attacks, financial sabotage in the financial market, design and launch of social engineering trojans, infrastructure attacks on IoT (Internet of Things) networks, and sale of hacker tools with open source. The authors have analyzed the number and quality of cyberattacks on domestic financial institutions in 2016–2020; summarized the losses caused by cyberattacks to financial institutions; and identified the main scenarios for the development of cyberthreats and cyberattacks for the national financial system. As the main conclusion, the authors determine that further elaboration of the issues of ensuring financial institution cybersecurity in the digital economy requires justification and implementation of specific programs and activities carried out both by commercial banks within the framework of individual strategies for ensuring digital security, and by authorities and management with positions of ensuring the digital sovereignty of the state.
Keywords: cyberterrorism, financial institutions, digital economy, security of financial transactions
JEL: G21, G28
Funding: The article was prepared within a state assignment of the Market Economy Institute of the Russian Academy of Sciences; the topic of research is “Institutional transformation of economic security in the solution of socioeconomic sustainable development problems of the national economy of Russia.”
For citation: Shkodinsky S.V., Dudin M.N., Usmanov D.I. Analysis and Assessment of Cyberthreats to the National Financial System of Russia in the Digital Economy. Financial Journal, 2021, vol. 13, no. 3, pp. 38–53 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-38-53.

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Victor Ya. Pishchik, Peter V. Alekseev
Cybercrime as a Key Operational Risk of the Payment and Settlement Infrastructure of the Global Financial System
and Approaches to Its Regulation in the Eurasian Economic Union
, p. 54-66
Abstract
One of the key areas in the formation of a single financial market within the Eurasian Economic Union (hereinafter, EAEU or Union) is the development of a single payment space (SPS) of the Union. In the context of growth and transformation of the risks of the payment and settlement infrastructure (PSI) of the global financial system (GFS) (sanctions, systemic, operational and other risks), the problem of effectively neutralizing their impact on the PSI of the EAEU countries is highly topical. The article clarifies the conceptual apparatus associated with the transformation of risks for the PSI of the GFS, and carries out their systematization. Sources of operational risk of the GFS’s PSI, including the threat of an increase in cybercrime, are analyzed. The authors assert that the main type of operational risk for the PSI of the GFS in the future will evidently be cyberattacks using trojans, ransomware viruses and phishing, as well as blocking user access to Internet sites using DDoS attacks. Nowadays, the number of DDoS attacks in Russia has been growing for several years in a row, and this growth may intensify in 2021 due to a number of factors set out in the article. It is indicated that, in Russia and other EAEU countries, growth in cybercrime is one of the main threats to the stable functioning of the national PSI as well as credit and financial systems in general. In this regard, the article substantiates the need to develop regional cooperation on cybersecurity issues within the EAEU using the experience of the European Union, where this issue is paid very serious attention. Besides, it is advisable to build up international cooperation between the countries of the world within the UN in order to enhance the cybersecurity of the GFS’s PSI and ensure the successful development of the SPS in the EAEU.
Keywords: Eurasian Economic Union, single payment space, payment and settlement infrastructure, global financial system, risk transformation, cybercrime, cybersecurity
JEL: F36, G15
Acknowledgments: The article was prepared based on the results of research carried out at the expense of budget funds within a state contract of the Financial University.
For citation: Pishchik V.Ya., Alekseev P.V. Cybercrime as a Key Operational Risk of the Payment and Settlement Infrastructure of the Global Financial System and Approaches to Its Regulation in the Eurasian Economic Union. Financial Journal, 2021, vol. 13, no. 3, pp. 54–66 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-54-66.

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Andrey I. Lukashov
Some Directions of Increasing the Efficiency of Public Administration in the Context of Digitalization
, p. 67-75
Abstract
Building upon the practices of the Treasury of Russia as well as other federal executive agencies, this article presents a new approach aimed at improving the efficiency of public administration through the centralization of general management functions within a given body. The set of general functions across public authorities is largely generic, suggesting that the stage involving the optimization of said functions can be regarded as a preliminary one preceding a full-fledged digital transformation of public administration. Functions associated with budget accounting and budget report formation, material and technical support, and personnel, legal and administrative activities dominate in the structure of both federal and local authorities’ general management functions. At the same time, individual government bodies at both the federal and regional levels are all, to some extent, engaged in the optimization of general functions implementation costs through assigning appropriate powers to subordinate agencies. Exemplified by the Treasury of Russia and other public administration bodies, the article systemizes and analyzes the existing approaches within the subject matter. As a result of the analysis, it is deemed advisable to synchronize the activities of public authorities, in particular through coordinating the process at the level of the Government of the Russian Federation.
Keywords: public administration, general management functions, digitalization, centralization of general functions, efficient use of budget funds, treasury, integration, unified information platform
JEL: H83
For citation: Lukashov A.I. Some Directions of Increasing the Efficiency of Public Administration in the Context of Digitalization. Financial Journal, 2021, vol. 13, no. 3, pp. 67–75 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-67-75.

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Makar I. Kudelich
Problems of Innovative Science and Technology Center Financing From Budgetary Funds, p. 76-87
Abstract
This article attempts to identify and analyze the problems of financial support for the creation and functioning of innovative science and technology centers (ISTCs) at the expense of the budgetary system of the Russian Federation which require their solution, in particular through improving legislation. The article provides an overview of the legal problems associated with the creation of ISTCs, the determination of the effectiveness of the Russian Federation’s tax expenditures on activities of the ISTCs, and the assessment of the volume and permissible directions of budget financing of the ISTCs. Conclusions are made about the absence of any formal criteria for support, or refusal to support, proposals to create an ISTC presented by the project initiator, including those related to the financial and economic justification of the requested amount of funds from the budgets of the budgetary system of the Russian Federation, as well as about the biased nature of budgetary efficiency calculation for Russia’s tax expenditures on activities of the ISTCs. The paper also contains proposals on possible mechanisms for determining and assessing the validity of financial support for ISTCs from the federal budget declared by project initiators.
Keywords: innovative science and technology center, financial support for creation and operation, tax expenses, budget
JEL: L32
For citation: Kudelich M.I. Problems of Innovative Science and Technology Center Financing From Budgetary Funds. Financial Journal, 2021, vol. 13, no. 3, pp. 76–87 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-76-87.

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Olga A. Sinenko, Timofey P. Mitrofanov
Identification of Signs of “Business Fragmentation” in Russian Far Eastern Territories with Special Economic Status
, p. 88-103
Abstract
The issue of “business fragmentation” has been relevant in Russia for over ten years. Business striving to ensure competitiveness makes it necessary to look for mechanisms to reduce the tax burden, applying special tax regimes or preferential tax conditions for residents of territories with special economic status. In this paper, the authors analyze the theoretical prerequisites for substantiating the signs of “business fragmentation,” and study the scope of application of “business fragmentation” schemes within the framework of preferential tax conditions for territories with special economic status in the Far East. The basic research methods were content analysis, comparative analysis and synthesis. As a result of the content analysis of judicial practice, the criteria for business fragmentation, confirming the formal division of a business, were substantiated. The authors carried out a comparative analysis of resident companies and identified, based on open data, 159 residents of priority social and economic development areas (PSEDAs) and 625 residents of the Free Port of Vladivostok (FPV) with signs of “business fragmentation.” Those amounted to 28.49 % and 29.48 % in the total number of active residents, respectively. Vladivostok is the leader in terms of the number of residents with signs of “business fragmentation,” with 443 residents of the FPV. The most common signs of “business fragmentation” among resident companies in territories with a special economic status of the Far East are substantiated: common persons managing companies, common or identical type of activity, and common address of location. Common types of activity among resident companies with signs of “business fragmentation” within territories with special economic status of the Far East are warehousing and auxiliary transport (15 % of PSEDA; 12.3 % of the FPV); construction of buildings (16.5 % of the FPV); and operations with real estate (14 % of the FPV).
Keywords: business fragmentation, Free Port of Vladivostok, priority socio-economic development areas, Far East, tax risks, tax incentives
JEL: E62, F38
For citation: Sinenko O.A., Mitrofanov T.P. Identification of Signs of “Business Fragmentation” in Russian Far Eastern Territories with Special Economic Status. Financial Journal, 2021, vol. 13, no. 3, pp. 88–103 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-88-103.

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Alexey A. Artemiev
The Flow of Dividends to the Seller: Customs Valuation Methodology
, p. 104-115
Abstract
The article is devoted to customs valuation methodology for foreign trade transactions run between related parties. It is proven that, in the conditions of a wide range of transfer pricing transactions, the actual sense of all costs and expenses of the buyer is vital. The study shows that, in determining the customs value, analysis of the business model in total, of the relationship between the parties, and of the real economic sense of various expenses is a must. Proposals for methodological approaches to customs valuation are developed and offered.
Keywords: customs value, customs valuation methodology, Eurasian Economic Union, price actually paid or payable for imported goods, flow of dividends
JEL: H20, H25, M31
For citation: Artemiev A.A. The Flow of Dividends to the Seller: Customs Valuation Methodology. Financial Journal, 2021, vol. 13, no. 3, pp. 104–115 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-104-115.

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Vyacheslav Yu. Dodonov
Devaluation’s Impact on the Formation of Kazakhstan Government Budget: The Factor of the National Fund Investment Income
, p. 116-131
Abstract
Depreciation of the national currency — economies with predominantly raw material exports included — is reflected not only in the indicators of the external sector, but also in the sphere of public finance, in particular the formation of budget revenues. In Kazakhstan, the impact of devaluation on the formation of the state budget is specific, associated with the presence of a special source of its income in the form of transfers from the sovereign wealth fund (National Fund). During the period of low oil prices, revenues to the National Fund from the oil sector decreased, and its accelerated spending began, which brought to the forefront investment income as one of the main source of its receipts. The high investment income in the Kazakh currency secures relative stability of the fund’s volume and transfers to the budget, but this income is largely formed due to the exchange rate factor. The weakening of the Kazakhstani tenge against hard currencies placed as the main part of the fund’s assets ensures an increase in the tenge investment income through their revaluation. The growth of investment income, in turn, produces increased volumes of transfers to the budget. Thus, the devaluation of the tenge has become a factor of stability in the formation of state budget revenues.
Keywords: devaluation, foreign exchange rate effect, government budget, Kazakhstan National Fund, investment income
JEL: H61, H62, E58
For citation: Dodonov V.Yu. Devaluation’s Impact on the Formation of Kazakhstan Government Budget: The Factor of the National Fund Investment Income. Financial Journal, 2021, vol. 13, no. 3, pp. 116–131 (In Russ.). https://doi.org/10.31107/2075-1990-2021-3-116-131.

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Financial Journal Vol.13 No.2 2021

CONTENTS

Vladimir V. Vagin, Ekaterina S. Shugrina
The Role of Participatory Budgeting in Forming an Ecosystem of Civic Participation in State and Municipal Governance,
 p. 9-24

Abstract
The purpose of the article is to substantiate the ecosystem approach as a basis for building a model of citizen participation in state and municipal governance, manifested in the laws of the Russian Federation, strategic planning documents, and other regulations, as well as in participatory practices of budget decisions. The ecosystem of citizen participation in governance is an urgent need for the modern stage of development of civil society and the entire complex of state–civil relations in Russia. The creation of such an ecosystem can increase the efficiency of state and municipal governance, include citizens and civil society institutions in the process of selecting priorities for the actions of public authorities, and reduce the protest potential caused by the lack of a comprehensive toolkit for citizen participation in governance. Among the first steps toward the formation of this ecosystem is the development of a federal law on public participation in governance. This law should become the basis for the inclusion in sectoral legislation of provisions governing relations between public authorities and citizens directly involved in decision-making on state and municipal governance issues. An important role in the deployment of the ecosystem is played by the development and implementation of a set of measures aimed at including the issues of citizen participation in the activities of state programs and national projects of the Russian Federation, implemented at all levels of public authority. The article also defines the basic principles of the development of the civic participation ecosystem.
Keywords: participatory budgeting, economic ecosystem, ecosystem of civic participation, citizen engagement in governance, law on public participation
JEL: H72, R51, R58
For citation: Vagin V.V., Shugrina E.S. The Role of Participatory Budgeting in Forming an Ecosystem of Civic Participation in State and Municipal Governance. Financial Journal, 2021, vol. 13, no. 2, pp. 9–24 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-9-24.

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Giovanni Allegretti, Matteo Bassoli, Greta Colavolpe
On the Verge of Institutionalisation? Participatory Budgeting Evidence in Five Italian Regions, p. 25-45
Abstract
Over the past few years, Italy has been setting the stage for different democratic innovations, especially those that have been implemented at municipal (or sub-municipal) level in different parts of the country. The expansion of Participatory Budgeting has been a remarkable one, accompanied by the diffusion of regional laws that were adopted to promote a culture of more intense civic participation. Moving from an overview of the recent diffusion of Participatory Budgeting in different areas of the country, this article proposes a reflection on what kind of added value the existence of this legal provision has led to the promotion of participation at a regional level and what this may represent. The construction of the Italian branch of Participatory Budgeting’s World Atlas offers an opportunity to assess legal provisions’ contribution to the diffusion and enrootment of participatory practices, especially in smaller-scale municipalities. Through zooming into some cases (such as Sicily, Emilia Romagna, Apulia and Tuscany, or Lazio in the last few years) the authors argue that the formalisation of participatory practices into legal frameworks today is an important but not a sufficient factor that diffuses and enroots participatory culture in local territories, and that a supplement of monitoring structures and detailed studies would help make challenges and added values of regional law frameworks clearer.
Keywords: participatory budgeting, institutionalisation, regional laws, participation incentives, citizens engagement, public policies, and civic engagement
JEL: O35, K30, N44, L38
For citation: Allegretti G., Bassoli M., Colavolpe G. On the Verge of Institutionalisation? Participatory Budgeting Evidence in Five Italian Regions. Financial Journal, 2021, vol. 13, no. 2, pp. 25–45. https://doi.org/10.31107/2075-1990-2021-2-25-45.

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Tatiana I. Vinogradova
Participatory Budgeting as a Tool Contributing to the Achievement of the Sustainable Development Goals, p. 46-60
Abstract
The paper investigates the participatory budgeting phenomenon in how it may accelerate many of the Sustainable Development Goals (SDGs) and support governments in reaching targets of the 2030 Agenda. The article analyzes the links between public participation in the budget process and sustainable development, illustrates the difference between participatory budgeting and other forms of public participation, and highlights the main effects of participatory budgeting. Results emerged from the analysis are that participatory budgeting as an adaptive mechanism can be integrated into the national objectives for the localization of the 2030 Agenda; that as a small-scale tool it can become a mechanism for testing numerous innovative approaches to public services provision; and that the “sustainable community creation” effect is the most important contribution to the Sustainable Development Goals.
Keywords: participatory budgeting, public participation in the budget process, Sustainable Development Goals, Open Budget Index, voluntary national review
JEL: F53, F55, H72, Q01
For citation: Vinogradova T.I. Participatory Budgeting as a Tool Contributing to the Achievement of the Sustainable Development Goals. Financial Journal, 2021, vol. 13, no. 2, pp. 46–60 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-46-60.

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Natalia G. Lukyanova
Saint Petersburg Experience of Participatory Budgeting, p. 61-69
Abstract
The article is devoted to summarizing the experience of implementing participatory budgeting practices in Saint Petersburg over a five-year period as well as the role and forms of citizen involvement in budget decision-making. An innovative form of public discussion, through the participation of citizens in the work of the budget commission, allowed one not only to attract a significant number of citizens to solve the problems of the metropolis, but also to increase the efficiency of budget fund spending. Special attention is paid to the testing of a new type of public participation in the development of the urban environment, namely participatory design, one of the effects of which is the possibility of attracting extra-budgetary sources of funding. The practice of participatory design is already in demand among potential investors and has shown good results in projects aimed at the development and improvement of newly built-up areas. School participatory budgeting practices were successful as well, in which high school students were asked to work out projects not only for the development of school infrastructure, but also that of the territory of Saint Petersburg’s districts. The experience gained allowed us to identify the main disadvantages and advantages of different practices, which will be taken into account when scaling them. 
Keywords: participatory budgeting, Your Budget project, involvement of citizens in budget decisionmaking, budget commission, participatory design
JEL: H41, H72
For citation: Lukyanova N.G. Saint Petersburg Experience of Participatory Budgeting. Financial Journal, 2021, vol. 13, no. 2, pp. 61–69 (In Russ.). https://doi.org/2075-1990-2021-2-61-69.

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Elena M. Mrachek, Irina V. Valyushitskaya
The Role of Project Centers in the Development of Participatory Budgeting: The Practice of the Krasnoyarsk Territory, p. 70-82
Abstract
Over the past decade, the practice of participatory budgeting has been getting increasingly widespread in Russian regions, its implementation taking place through a variety of methods. Using the Project Center of the Krasnoyarsk Territory as an example, the article examines the experience of information, methodological and educational support of the Program to Support Local Initiatives. The authors describe the structure and development of the integrated support system as well as the approaches to the implementation of educational support, highlight the specific features of information and methodological support for program participants, and summarize the results of the implementation of the regional Program to Support Local Initiatives.
Keywords: participatory budgeting, project center, additional professional education, Program to Support Local Initiatives
JEL: H41, H72
For citation: Mrachek E.M., Valyushitskaya I.V. The Role of Project Centers in the Development of Participatory Budgeting: The Practice of the Krasnoyarsk Territory. Financial Journal, 2021, vol. 13, no. 2, pp. 70–82 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-70-82.

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Natalia G. Ivanova, Vitalii A. Fedosov
Goal Setting of Youth Practices of Participatory Budgeting, p. 83-92
Abstract
Participatory budgeting in the Russian Federation is experiencing a new round of development. The practices of participatory budgeting, which are implemented by state and local governments, are becoming more and more diverse. Some of them involve people who are not well-represented in standard practices, for example, people with disabilities, young people etc. The authors conduct a study of the development of participatory budgeting practices for young people, highlight their characteristic features, and summarize foreign and Russian experience. A key aspect of designing the practice of participatory budgeting is its goal setting. The article systematizes the goals of participatory budgeting practices for “adults” and, based on the available data, determines the priorities of goal setting for youth participatory budgeting practices. The authors substantiate the relationship between the practices of participatory budgeting for young people and programs to improve budget literacy. 
Keywords: youth practices of participatory budgeting, school practices of participatory budgeting, goal setting, budget literacy
JEL: H72, R50
For citation: Ivanova N.G., Fedosov V.A. Goal Setting of Youth Practices of Participatory Budgeting. Financial Journal, 2021, vol. 13, no. 2, pp. 83–92 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-83-92.

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Mikhail V. Milchakov
Implementation of Regional Development Priorities Under the Conditions of the COVID-19 Pandemic, p. 93-113
Abstract
Due to historical features and the heterogeneity of the economic landscape, the regions of Russia are characterized by significant disparities in the level of socioeconomic development. In order to manage regional development, a number of important strategic documents have been adopted, including the Spatial Development Strategy. The tasks of supporting problem regions and developing the largest agglomerations are articulated in these documents. In the context of the pandemic, new challenges have emerged related to slowing economic growth and budget constraints. The article examines the specifics of the formation of individual programs for the socioeconomic development of problem regions, as well as the situation of cities with more than 1 million inhabitants during the pandemic. The author presents proposals for improving the measures included in the Spatial Development Strategy.
Keywords: spatial development strategy, intergovernmental fiscal relations, intergovernmental transfers, national projects, regional budgets, agglomerations, individual programs, balanced development, interregional inequality, pandemic
JEL: H61, H72, H77, R11, R58, P25
For citation: Milchakov M.V., Implementation of Regional Development Priorities Under the Conditions of the COVID-19 Pandemic. Financial Journal, 2021, vol. 13, no. 2, pp. 93–113 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-93-113.

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Vladislav V. Bukharsky
Fiscal Decentralization and Incentives of Local Authorities in the Russian Federation, p. 114-129
Abstract
This article examines the impact of intraregional fiscal decentralization on fiscal incentives for local governments in the Russian Federation. It is expected that decentralization contributes to the economic development of territories through two channels: 1) a higher level of budgetary (tax) decentralization gives more opportunities to local authorities to realize the economic potential of the territory; 2) stable decentralization of revenue sources preserves incentives for local authorities to realize such opportunities. In comparison with the widespread approach to measuring these incentives in terms of gross regional product, the author uses indicators of entrepreneurship, the development of which is mostly within the competence of local authorities. As a measure and stability of decentralization, the norms for deducting revenues to local budgets are used. No clear and conclusive evidence of the impact of decentralization is found: due to the low financial security of subnational budgets overall, the transfer of standards can rather be understood as financial assistance to the lower budget, in particular because the size of the average transferred standard grows with the level of subsidies in the region. At the same time, there are certain positive results: the very fact of the transfer of the revenues levied in connection with the application of the simplified taxation system is accompanied by an increase in entrepreneurial activity in the region. A similar effect is exerted by the stability of the revenues on personal income tax and corporate property tax. In general, it can also be pointed out that local authorities have low indicators of the level and stability (rigidity) of budget decentralization.
Keywords: fiscal decentralization, hard budget constraints, soft budget constraints, fiscal incentives, local governments, entrepreneurship
JEL: H61, H70, H71
For citation: Bukharsky V.V. Fiscal Decentralization and Incentives of Local Authorities in the Russian Federation. Financial Journal, 2021, vol. 13, no. 2, pp. 114–129 (In Russ.). https://doi.org/10.31107/2075-1990-2021-2-114-129.

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Financial Journal Vol.13 No.1 2021

CONTENTS

Valery V. Kizilov
Some Macroeconomic Consequences of COVID-19: Specifics of the 2020 World Economic Crisis,
p. 9-27
Abstract
In 2020, almost all large countries experienced a decline in GDP and other indicators of economic activity. This trend followed the news about the COVID-19 pandemic and had several features typical for cyclical economic crises. At the starting point, both demand and supply factors were negatively affected. This paper looks into data on GDP, retail sales and foreign trade dynamics in the first nine months of 2020, and analyzes the difference between developed and developing countries. Specific phenomena are observed: Germany and its small neighbors had relatively mild crises; developed countries had their trade balances deteriorating; the trade between the USA and China revived; and American deficit has been growing since April 2020. Some hypotheses to explain the above are offered. For instance, the German economy might have been able to adapt swiftly due to greater freedom of entrepreneurship than in France and Italy and due to the lowest debt ratios among G7 countries. The trade balances of developed countries deteriorated, possibly, because of a decline in production as a result of anti-COVID lockdowns, with consumption encouraged by stimulating policy measures.
Keywords: economic crisis, economic cycle, supply shock, foreign trade, public debt, investment climate, economic freedom, COVID-19
JEL: E32, E65, F14, F44
For citation: Kizilov V.V. Some Macroeconomic Consequences of COVID-19: Specifics of the 2020 World Economic Crisis. Financial Journal, 2021, vol. 13, no. 1, pp. 9–27 (In Russ.). DOI: 10.31107/2075-1990-2021-1-9-27.

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Yelena I. Andreeva, Dmitry G. Bychkov, Olesya A. Feoktistova
COVID-19 and Anti-Crisis Social Support,
 p. 28-38
Abstract
The authors analyze the response of the Russian government to the shrinking of household incomes during the 2020 economic crisis — the social support measures that were put in place to check the increase in poverty, and the social groups that were targeted by direct federal cash benefits. The anticrisis social support measures in Russia were, on the whole, comparable in composition and scope to what the governments in other countries were doing. A special feature of the Russian approach was that the new social benefits and the increased amounts of already existing benefits were addressed exclusively to families with children and were granted irrespective of household income levels. The authors estimate that the additional social support benefits, had they been implemented before the crisis, would have reduced the pre-crisis level of poverty by almost one third, although seven out of ten Russian households were left out of this additional support because they had no underage children. This leads to the conclusion that, in the future, social support policies must change to meet new challenges not only quickly, as they did during the last year’s crisis, but also in a more targeted manner.
Keywords: level of poverty, depth of poverty, monetary incomes of the population, social benefits, effectiveness of social support measures
JEL: I32, I38
For citation: Andreeva Ye.I., Bychkov D.G, Feoktistova O.A. COVID-19 and Anti-Crisis Social Support. Financial Journal, 2021, vol. 13, no. 1, pp. 28–38 (In Russ.). DOI: 10.31107/2075-1990-2021-1-28-38.

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Anton V. Gorodnichev, Tatiana V. Kulakova, Maria A. Moiseeva
Dynamics of Russian Cities Budget Autonomy in the Transition to Multi-Level Governance,
 p. 39-57
Abstract 
Throughout the period after the municipal reform in 2003, the governing of Russian cities has been changing. A city as an object of governance is located at the intersection of interests of different levels of public authorities and is not limited only to local authorities This article investigates how budget autonomy of Russian cities has been changing for the last 16 years, and how exogenous economic shocks and large-scale federal initiatives such as the “May Decrees” have influenced the budget autonomy of Russian cities. The paper considers a hypothesis that there was a transition to multi-level governance of Russian cities in 2006–2019, which led to significant reduction of the budget autonomy. Budgets of the 35 largest cities of Russia (except for city-regions like Moscow and Saint Petersburg) were collected and analyzed in terms of their revenue and expenditure sections to test the proposed hypothesis. The relationship between the economic level of development and budget sufficiency was investigated with cluster analysis. The main result of this research is that Russian cities have become dependent on the financial grants from regional governments since there is no national policy of stimulating the economic development of cities. The national economic crisis of 2014 accelerated the process of governance centralization. In addition, the budget autonomy of municipalities was reduced due to the fact that achieving indicators of the May Decrees had become the primary objective for the public authorities. The share of the income tax in local budgets increased significantly although the share and diversity of other income sources decreased.
Keywords: urban economics, municipal budgets, urban governance, multi-level governance, budget autonomy, urban planning, the May Decrees
JEL: R51
For citation: Gorodnichev A.V., Kulakova T.V., Moiseeva M.A. Dynamics of Russian Cities Budget Autonomy in the Transition to Multi-Level Governance. Financial Journal, 2021, vol. 13, no. 1, pp. 39–57 (In Russ.). DOI: 10.31107/2075-1990-2021-1-39-57.

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Boris I. Alekhin
Oil and the Ruble: Collapse of Cointegration,
 p. 58-74
Abstract
Oil still contributes around 30 % to Russia's commodity export earnings, therefore the impact of oil prices on Ruble's exchange rate is of current interest to Russian economists. Instruments of time series analysis were used to test a proposition that the Russian ruble’s exchange rate has become less dependent on Brent crude oil price in recent years. We obtained 1,095 weekly observations for years 2000 to 2020 were obtained from FINAM company website. Our empirical model is a linear regression of the ruble’s exchange rate on Brent crude oil price. The Bai-Perron test has identified three structural breaks in the data corresponding to four chronological regimes. The Engle-Granger cointegration test has found both the rate and the price to be non-stationary in all regimes while cointegration was found only in the third regime (September 12, 2011 – October 23, 2017). The main reasons for collapse of cointegration in the fourth regime (October 30, 2017 – December 28, 2020) are 1) successful efforts by oil-producing countries to curb oil production, 2) decline in Russian import of goods and services, 3) Bank of Russia’s contractionary monetary policy, 4) built-in exchange rate stabilizer activated by the budget rule, and 5) anti-Russian sanctions. Cointegration, as it turns out, comes and goes.
Keywords: oil, ruble, correlation, cointegration
JEL: E31, F31, F33
Acknowledgments: The author is grateful to the referee for constructive criticism of the manuscript.
For citation: Alekhin B.I. Oil and the Ruble: Collapse of Cointegration Financial Journal, 2021, vol. 13, no. 1, pp. 58–74 (In Russ.). DOI: 10.31107/2075-1990-2021-1-58-74.

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Natalya A. Khutorova
Global Catastrophe Bond Market and the Prospects of Its Formation in the Russian Federation,
 p. 75-92
Abstract
The article is devoted to the development of instruments for catastrophe risk financing. The state of the global market for disaster risk financing is analyzed in order to identify the main development trends and the possibilities of using conceptual approaches in the Russian practice of the financial market. It is proven that the development of the catastrophe bond market has prospects in conditions of permanent instability, since catastrophe bonds are unique and highly attractive due to the lack of correlation with macroeconomic events. It is suggested that the instruments of catastrophe risk financing can be considered in the context of the development of sustainable finance. The paper identifies the main problems slowing down the development of the Russian catastrophe bond market, and formulates proposals aimed at developing the market for insurance-linked securities (ILS) in the Russian Federation. Pilot CAT bonds emission prospectuses should be based on structured bonds, with elements of a subordinated bond. There is a need to introduce into the Russian legal field a term defining ILS as a category. It is proposed to register special purpose vehicles (SPVs) and catastrophe funds in Russian offshores. The Russian analogue of catastrophe funds should be a closed-end investment fund with high funding for qualified investors. It is proposed to update the formula for calculating the creation of and the procedure for using reserve funds, in particular with the use of catastrophe risk financing tools. A pilot issue of CAT bonds is proposed to be conducted on behalf of VEB.RF, as bonds sponsoring regions exposed to high natural risks. In the process of developing socially responsible investor practice and tools for socially responsible investments, it is suggested to establish a Russian “Green Index” and to create green ETFs in Russia. Due diligence (DD) approaches are recommended for decisions on issuing catastrophe bonds.
Keywords: CAT bonds, ILS, financial markets, catastrophe risk financing, risks
JEL: G10, G18
For citation: Khutorova N.A. Global Catastrophe Bond Market and the Prospects of Its Formation in the Russian Federation. Financial Journal, 2021, vol. 13, no. 1, pp. 75–92
(In Russ.). DOI: 10.31107/2075-1990-2021-1-75-92.

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Elena V. Rozhentsova, Anastasiia D. Saltykova, Tatyana М. Devyatkova
Unallocated Metal Accounts in Russia: Determinants of Quoted Bid-Ask Spreads,
 p. 93-106
Abstract
Due to economic instability there has been an increase in demand for unallocated metal accounts offered by Russian commercial banks since April 2020. Although opening unallocated metal accounts gives banks an opportunity to expand the range of their products, diversify income, attract new clients and retain old ones, most Russian banks do not provide such services. For those, it is important to understand the determinants of bid-ask spreads (the difference between the quoted metal bid and ask prices), since the demand for unallocated metal accounts and the bank’s income from this service depend on the bid-ask spread. The purpose of this paper is to investigate the main determinants 
of quoted bid-ask spreads on unallocated metal accounts in commercial banks. Multiple regression models are applied for the period from October 2017 to May 2020. There are very few articles on the determinants of quoted bid-ask spreads on unallocated metal accounts; for this reason the paper is based on the results of studies of bid-ask spreads in other markets. Based on recent theoretical results, which indicate that bid-ask spreads depend on price volatility, we confirm this hypothesis on unallocated metal accounts. Moreover, we reveal that banks’ assets and the share of state participation influence bid-ask spreads on unallocated metal accounts in commercial banks. It is also proven that
bid-ask spreads for unallocated metal accounts in gold are, on average, lower than those for palladium, platinum and silver.
Keywords: unallocated metal account, bid-ask spread, price volatility, banking sector, gold market, precious metals market
JEL: G21, G12, G13
For citation: Rozhentsova E.V., Saltykova A.D., Devyatkova T.М. Unallocated Metal Accounts in Russia: Determinants of Quoted Bid-Ask Spreads. Financial Journal, 2021, vol. 13, no. 1, pp. 93–106 (In Russ.). DOI: 10.31107/2075-1990-2021-1-93-106.

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Tatyana G. Arbatskaya
Accounting and Analysis of Cash Flows of Penal Entities,
 p. 107-124
Abstract
The global economic crisis, exacerbated by the pandemic of the new coronavirus infection, has led to a significant deterioration in the financial state of most economic entities. This problem has also affected public sector entities receiving budget financing. Even if a given public sector entity is engaged in entrepreneurial activity, with a decrease in sales cash flow decreases, whereas accounts receivable and payable increase. To carry out their statutory activities, state entities of the penitentiary system in the Russian Federation use not only budgetary funds, but also funds received from the sale of products manufactured by convicts. Therefore, the interest of users in the cash flows of penitentiary institutions is steadily increasing. The above strengthens the information and analytical functions of cash flow statements. Unlike other forms of reporting, the cash flow statement should report cash flows during the period classified by operating and investing activities (financing activity is not typical for penitentiary entities). In addition, the statement of cash flows provides useful information not only for controlling the use of budget funds, but also for current and forecast analysis. The article investigates the theoretical principles of accounting of cash flows of public sector entities of the penitentiary system of the Russian Federation. Results of the study include a proposal to improve the form of the cash flow statement by including an analytical feature — the source of financing activities. The study also presents and tests a methodology for analyzing cash flows in the context of funding sources.
Keywords: cash flows, cash flow statement, presentation of a cash flow statement, financing, cash flow analysis
JEL: H61, H83
For citation: Arbatskaya T.G. Accounting and Analysis of Cash Flows of Penal Entities. Financial Journal, 2021, vol. 13, no. 1, pp. 107–124 (In Russ.). DOI: 10.31107/2075-1990-2021-1-107-124.

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Kristina V. Shvandar, Anastasia A. Anisimova
Approaches to Reforming Pension Systems in the World and Recommendations for Russia,
 p. 125-135
Abstract
Global trends in the pension sector show that a funded pension, in addition to a pay-as-you-go component, increases the reliability of pension protection for retired people and improves the stability of the pension system. The article analyzes the main directions of reforms of both distribution and funded components. The common features of the considered pension systems are the presence of several levels and their effective interaction as well as the expansion of the role of accumulative pension systems. Reforms related to increasing the population coverage with accumulative pension plans are among the most common ones in the framework of the analysis. The main directions for improving the Russian funded pension system are highlighted, among which the voluntary payment of contributions and the ability to set the desired amount of contributions are the main components of the proposed changes, based on the analysis of international experience in reforming pension systems.
Keywords: funded pension, mandatory funded pension plans, pension contributions, private pension funds, pension savings
JEL: H55, J26
For citation: Shvandar K.V., Anisimova A.A. Approaches to Reforming Pension Systems in the World and Recommendations for Russia. Financial Journal, 2021, vol. 13, no. 1, pp. 125–135 (In Russ.). DOI: 10.31107/2075-1990-2021-1-125-135.

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Financial Journal Vol.12 No.6 2020

CONTENTS

Kirill L. Astapov, Rasul А. Musaev, Anton A. Malakhov
Evaluating the Effectiveness of the Budget Expenditure Policy, p. 9-24
Abstract
The article discusses opportunities for improving fiscal policy in order to ensure macroeconomic stability and sustainable growth of the Russian economy. Budget expenditures have several key macroeconomic goals, the quality of which determines the effectiveness of budget spending policies. The authors developed a methodology that allows evaluating changes in the efficiency of budget expenditures based on a set of indicators. The estimates are based on the Russian Federation as the example, with special attention paid to the implementation of a balanced budget policy over the past decade. In Russia, significant progress has been made in ensuring macroeconomic stability through the introduction of flexible mechanisms for macroeconomic regulation (budget rules and floating exchange rates). However, when planning budget expenditures, additional attention should be paid to ensuring long-term economic growth and inclusive development, the structure of expenditures adjusted in accordance with these priorities. In the final part of the article, we consider changes in budget policy that have become a response to the crisis situation caused by the coronavirus pandemic. It is concluded that an increase in public debt may be appropriate in the current economic conditions in the event of a qualitative improvement in the budget spending policy.
Keywords: fiscal policy, fiscal stability, stabilization policy, long-term development, inclusive growth, fiscal stimulus, anti-crisis measures.
JEL: E61, E62, E63
For citation: Astapov K.L., Musaev R.А., Malakhov A.A. Evaluating the Effectiveness of the Budget Expenditure Policy. Financial Journal, 2020, vol. 12, no. 6, pp. 9–24 (In Russ.). DOI: 10.31107/2075-1990-2020-6-9-24.

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Vladimir V. Vagin, Irina V. Petrova
The Role of Public Participation in Ensuring the Efficiency of Budget Expenditures, p. 25-38
Abstract
The article is devoted to the relation between public participation and the effectiveness of budget expenditures. Studying the effectiveness of budget expenditures is one of the most relevant topics of public finance. At the same time, the question of whether civil participation has an impact on improving the efficiency of public spending is not often considered in the scientific literature. The authors analyze the development of the system of civil participation in the implementation of projects of state programs and national projects of the Russian Federation, and conclude that civil participation is important for improving the efficiency of budget expenditures. The results of citizens’ participation in the implementation of "Formation of a comfortable urban environment" federal project are chosen as the basis for the empirical analysis of this article. The authors attempt to determine the main approaches to forming indicators of the effectiveness of public participation in state programs and federal projects. The article also contains recommendations aimed at encouraging event organizers to engage citizens at the regional and local levels.
Keywords: civil participation, efficiency of budget expenditures, participatory budgeting, allocation efficiency, “Formation of a comfortable urban environment” federal project.
JEL: H72, H76, H79
For citation: Vagin V.V., Petrova I.V. The Role of Public Participation in Ensuring the Efficiency of Budget Expenditures. Financial Journal, 2020, vol. 12, no. 6, pp. 25–38 (In Russ.). DOI: 10.31107/2075-1990-2020-6-25-38.

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Boris I. Alekhin
Vertical Fiscal Imbalance and Regional Economic Growth, p. 39-53
Abstract
This study examines the impact of fiscal decentralization on regional economic growth using panel data for 82 subjects of the Russian Federation for the period 2005-2018. General theoretical framework was drawn from the second-generation theory of fiscal federalism, and panel data econometrics suggested the appropriate empirical model and estimation method. The pooled mean group method was used to estimate an autoregressive distributed lags model based on Solow-Swan theory of economic growth. The results indicate that vertical fiscal gap has a negative and significant long-term impact on regional economic growth while vertical fiscal imbalance has a positive and significant long-term effect. The study is consistent with the modern theory of fiscal federalism, W.E. Oates’ matching hypothesis and previous empirical work using Russian data. The study also found evidence of conditional convergence of regional economies.
Keywords: fiscal decentralization, regional economic growth, conditional convergence
JEL: E13, H71, H72, H77, C23
For citation: Alekhin B.I. Vertical Fiscal Imbalance and Regional Economic Growth. Financial Journal, 2020, vol. 12, no. 6, pp. 39–53 (In Russ.). DOI: 10.31107/2075-1990-2020-6-39-53.

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Igor Yu. Arlashkin
Intergovernmental Fiscal Instruments for Stimulating Regional Economic Growth in Russia, p. 54-68
Abstract
The article examines the instruments used in intergovernmental fiscal relations in order to promote economic growth of the regions of the Russian Federation. The task of stimulating regional economic growth is relevant in the need for the Strategy of Spatial Development of the Russian Federation until 2025 to be implemented. The article deals with various instruments of tax decentralization as well as three main types of fiscal transfers: “grants” (primarily equalization or balancing transfers), “subsidies” (earmarked co-funding transfers), and “other intergovernmental transfers” (other earmarked transfers). All these instruments are assessed from the standpoint of stimulating economic growth with special attention being paid to the tools used by regional governments to promote local economic growth. The article summarizes the results of the main econometric studies on the topic. As a result of the present study, it is shown that the main instruments for stimulating regional economic growth are earmarked transfers (primarily capital transfers) and decentralization of taxes on income (primarily corporate income tax). At the same time, since 2015 “other intergovernmental transfers” have been playing a more significant role in stimulating economic growth than “subsidies”, which is associated with an increase in the equalizing effect of the latter. Decentralization of property taxes has most likely not had a significant impact on regional economic growth, and the negative effect of equalizing transfers (“grants”) is smoothed out by special clauses built into the methodology for their distribution. 
Keywords: regional economic growth, tax decentralization, fiscal decentralization, intergovernmental relations, intergovernmental transfers, fiscal equalization, fiscal grants.
JEL: H71, H77
For citation: Arlashkin I.Yu. Intergovernmental Fiscal Instruments for Stimulating Regional Economic Growth in Russia. Financial Journal, 2020, vol. 12, no. 6, pp. 54–68 (In Russ.). DOI: 10.31107/2075-1990-2020-6-54-68.

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Аnna A. Mikhaylova, Evgeny N. Timushev
Creditworthiness of Russian Regions: What Needs to Be Considered, p. 69-86
Abstract
The paper explores the main factors that affect the creditworthiness of Russian regions. Knowledge of credit rating factors can help manage debt sustainability more effectively, implement a countercyclical policy, diversify debt instruments, and strengthen the fiscal sustainability of the Russian budgetary system. To determine the main factors, the credit ratings assigned by ACRA credit rating agency are analyzed. A set of economic and fiscal indicators is formed based on the analysis of press releases, the critical values are calculated, and their relationship with the current criteria of assessing the quality of regional financial management is analyzed. We found that fiscal indicators play the primary role in rating, but the institutional setting (for example, the amount of mandatory expenditures) is much less considered. The main factors of a credit rating are the share of tax and non-tax revenues in total revenues, the share of capital expenditures in total expenditures, and the amount of the regional debt. The approximate values of revenues and debt that are most likely to change a region's rating are calculated. The current criteria of the quality of regional financial management are valid due to the signs of their direct correlation to the credit rating and its factors.
Keywords: credit rating, debt sustainability, financial quality criteria, own revenues, capital expenditures, debt, ordinary least squares, multinomial logit regression.
JEL: H74, H77
Acknowledgements: The article has been prepared within the framework of the study "Theoretical foundations for assessing regions' budgetary sustainability and its application in the public administration system", carried out as part of the implementation of the 2020 RANEPA state task.
For citation: Mikhaylova A.A., Timushev E.N. Creditworthiness of Russian Regions: What Needs to Be Considered. Financial Journal, 2020, vol. 12, no. 6, pp. 69–86 (In Russ.). DOI: 10.31107/2075-1990-2020-6-69-86.

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Makar I. Kudelich
Financial Participation of Public Partners in Public-Private Partnership, p. 87-99
Abstract
This article attempts to identify and analyze the problems of forms of financial participation of public partners in PPP agreements, which may be solved by legislation improvement. The article presents a comparative analysis of Russian and international practice and legislation in the field of types and procedures for choosing forms of state financial participation in PPP projects. Conclusions are made about the absence of formal criteria for choosing the form of financial participation of a public partner in the PPP agreement and the rules for determining their volume, about the uncertainty and shortcomings of legislative regulation of “financial provision” in relation to a public partner, about the refusal from using the provision of debt financing and budget investments in share capital of project companies, on the establishment of high security budgetary requirements for regressive rights of the state in relation to the principal, which make the use of state (municipal) guarantees unclaimed in Russian practice of PPP projects.
Keywords: Public-Private Partnership, Public Partner, Budget, State Financial Participation, Financial Support, Subsidies, State and Municipal Guarantees.
JEL: L32
For citation: Kudelich M.I. Financial Participation of Public Partners in Public-Private Partnership. Financial Journal, 2020, vol. 12, no. 6, pp. 87–99 (In Russ.). DOI: 10.31107/2075-1990-2020-6-87-99.

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Viktor N. Ageyev, Andrey V. Vlasov
Potential Applications of Digital Financial Asets, p. 100-112
Abstract
The purpose of the article is to analyze the future state of legal issues connected to the use of digital assets after the adoption of the Federal Law “On digital financial assets, digital currency ...” in the Russian Federation. Results: The main areas of application are highlighted for digital financial assets in the form of shares on blockchain and digital bills of exchange. The authors conclude that the new Law introduces significant restrictions, but at the same time opens up certain opportunities for business development in operations with digital financial assets. It is seen that the terminology used in the Law does not always correspond to the concepts and standards established in international legal and business practice. Practical significance: Recommendations made in this article may be useful in practice for the exchange operator of digital financial assets, the operator of the information system, and other subjects working in the innovative infrastructure when planning activities in the field of regulation of the Law and in dealing directly with digital financial assets. To harmonize activities with digital financial assets, the legislator and the regulator, represented by the Bank of Russia, can also use the practice-oriented approaches described by the authors.
Keywords: digital financial assets, digital currency, digital rights, information system, distributed ledger, blockchain, cryptocurrency, digital financial assets exchange operator, digital bills of exchange
JEL: E59, F31, G23, K19, K22, K33
Acknowledgements: The authors thank the experts of Technical Committee № 159 “Hardware and software of distributed ledger and blockchain technologies” and the participants of the webinar “New law of the Russian Federation on digital financial assets and digital currency” for their comments and discussion of the provisions set out in this article.
For citation: Ageyev V.N., Vlasov A.V. Potential Applications of Digital Financial Asets. Financial Journal, 2020, vol. 12, no. 6, pp. 100–112 (In Russ.). DOI: 10.31107/2075-1990-2020-6-100-112.

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Olga V. Bogacheva, Oleg V. Smorodinov
Disbalance in Pay Structure of Employees in Federal Budgetary Institutions, p. 113-125
Abstract
Among other things, the introduction of new pay systems in Russian federal institutions (2008) resulted in rapid growth of the variable part of wages. In the early 2010s, in numerous institutions this figure exceeded 50 %, and it still remains at an unreasonably high level. It is known, from the history of labor relations, that violation of balance between fixed (salary) and variable parts of wages leads to a reduction in motivation levels of employees and, as a consequence, to deterioration in productivity indicators and labor quality. In OECD countries, at the legislative level, the concepts of base and full rates of pay are introduced, and the number and size of incentive and compensation payments are optimized. The rates of base pay are regularly reviewed, taking into account changes in consumer prices and the cost of living. This practice allows a reasonable balance to be maintained between fixed and variable parts of wages. At the level of institutions, competency standards are being developed that ensure optimal differentiation in the size of the fixed part of wages and minimize the possibility of making incentive payments to employees simply for the performance of their job duties. The purpose of the article is to develop proposals for solving the problem of imbalance in the structure of wages of employees at Russian federal institutions, based on modern foreign practice in this area.
Keywords: new pay systems, fixed and variable pay, base pay, incentive rewards, standards of professional competencies.
JEL: J30, J31, J38
For citation: Bogacheva O.V., Smorodinov O.V. Disbalance in Pay Structure of Employees in Federal Budgetary Institutions. Financial Journal, 2020, vol. 12, no. 6, pp. 113–125 (In Russ.). DOI: 10.31107/2075-1990-2020-6-113-125.

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Ekaterina A. Panova
The Role of Trade Credit in Activities of Small and Medium-Sized Enterprises, p. 126-135
Abstract
Trade credit has a special meaning for small and medium-sized enterprises (SMEs). When they act as a supplier, it allows them to increase sales and cash flows, and helps establish and maintain permanent relationships with clients. Deferred payment provision is a tool for non-price competition, giving a client time to make sure of product quality. Trade credit as a financial source is an important alternative to bank lending. The article is devoted to studying the determinants of accounts payable in Russian industrial SMEs. It is based on the financial indicators calculated using the SMEs’ accounting statements for the period 2010–2018, published by Rosstat. The statistical data analysis has led to the conclusion that accounts payable are the main borrowed financial source for Russian industrial SMEs. The results of the regression analysis demonstrate a direct dependence of the accounts payable amount on sales growth and a reverse dependence of the former on the liquidity both in small and medium enterprises. Small businesses are also characterized by a negative relationship between return on sales and the accounts payable amount.
Keywords: small and medium-sized enterprises (SMEs), trade credit, accounts payable, borrowed funds, capital structure, regression analysis.
JEL: G32, L14, L60
For citation: Panova E.A. The Role of Trade Credit in Activities of Small and Medium-Sized Enterprises. Financial Journal, 2020, vol. 12, no. 6, pp. 126–135 (In Russ.). DOI: 10.31107/2075-1990-2020-6-126-135.

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