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.
This would be in line with the above discussion concerning the frequent changes in the FFSR procedure.
In 1999-2000 another reform was carried out--this time the formula to calculate transfers to the regions from the FFSR was based on indices of tax potential and indices of budgetary expenditure and supposedly should have resulted in the streamlining the actual flow of transfers in such a way that they correspond even more to the ideal transfers.
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.