On the Transformation of the Russian Model of Budget Financing for Merit Goods

The budgetary organizations in Russia rely equally on market signals and on the directive target settings of their state founders. The author outlines the conclusion about the excessive negative externalities of state managerialism, which has spread in Russia since the budget reform. The author justifies the transformation of the budget economy, which is described as being “forged in fire”. On the one hand, the economy is forced to operate under the laws of the market. On the other hand, it functions within a closed bureaucratic system. As an alternative to the “dualism” of budget subsidies and revenue from services, alternative investments could become the “third pillar” that could gradually take the place of the state. The purpose of the article is to present the author’s model dedicated to the transformation of the budget sector by promoting the economic deregulation and investment finance. As a result , the model proposes a new approach to reducing the burden on the overall budget system in the long run by replacing subsidies with the other sources of revenue. The model is based on the bank loan to a budget organization, providing the government guarantees the amount of N-year total budget subsidies. The organization subsequently uses the bank funds to establish an endowment and generate investment income. At the end of the N-year period, the founder is relieved from the obligation to finance the budgetary organization. In the mathematical version of the model, given the parameters of the money market, a target level of investment return is determined that ensures the viability of such a model. Calculations confirm the conclusion that the model can be implemented with low (preferential) interest rates and a loan term of 8–12 years.