In line with the logic of the FFSR, regions with higher expenditure needs (proxied with actual expenditures) should get more financial support (transfers).
The tax incomes specification, on the other hand, seems to capture the transfer flows best, as suggested by the FFSR formula.
Taking into account the high level of corruption in Russia, misuse of fiscal flows is a very realistic possibility, but our results provide evidence that the FFSR mechanism has, in general, worked according to its official intentions.
Even though the formula for the distribution of transfers from the FFSR
was established in 1999 and the new pattern of transfers in 2000 was really very different from the previous years, in 2001 the financial flows between the regions and the centre returned to their prevailing pattern of the 1990s.