In both countries, the early years of transition were associated with fiscal decentralization. In each of the transition economies, fiscal decentralization was a central piece of economic policy reform, for, as reforming economies became more decentralized and market-based, the public finances became the primary instrument for supplying public goods, protecting vulnerable members of society, and maintaining growth and stability. Yet, while fiscal decentralization fostered rapid growth in China, in Russia, de facto fiscal decentralization had dire consequences. Russia’s decentralization was an unintended consequence of state failure at the center, as the central government transferred more and more.
