Motivated by the recent experience in the Russian Federation, this paper examines the implications of imposing central control on the budgetary activities of a subnational government. In a highly stylised multi-task principal-agent model (Holmstrom and Milgrom (1991)), a central government...

Motivated by the Russian experience, this paper examines the implications of imposing central control on the budgetary activities of a subnational government. In a multi-task principal-agent model, the center cannot monitor directly the informal budgetary operations of a region, but it can exert...