Fiscal Federalism in Transition: Evidence from Ukraine

Effects of fiscal federalism on redistribution and economic growth are analyzed for Ukraine, a country with large regional differences. Since there is virtually no such empirical literature, except a study of the German case, and since there are several potential flaws, the results must be interpreted in a very tentative way. We find that this relatively poor, disorganized country with little democracy has effectively redistributed income from relatively wealthy to relatively poor regions and thus promoted regional economic convergence, and even dampened the recession in both types of regions. We also find that the evidence does not reject the view that relatively poor regions used the transfers in a growth-conducive fashion, and the paper argues that the findings may have implications beyond the case of Ukraine. But the analysis is tricky, uncertain, and merely a small step to an interesting research issue.