Russia's regional economies in wartime: Fiscal divergence, defence windfalls and transfer pressures

Sinikka Parviainen

No 5/2026, BOFIT Policy Briefs from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: Russia's regions bear a rapidly growing share of the fiscal costs of war. Since showing surpluses as recently as 2021, the collective regional deficit quadrupled in a single year. Using five years of budget execution reports from the Russian Federal Treasury across all 85 Russian regions (federal subjects), we construct a war-cost composite measuring the fiscal opportunity cost of the war in each region and build a typology for classifying regions by their dominant fiscal relationship with the war. According to our conservative estimate, war-related regional spending reached nearly 1 trillion roubles in 2025, more than double from 2021. The adverse turn for healthcare is particularly notable. Regional healthcare lost 3.5 percentage points of budget spending share and an over 20 % real terms decline in spending, the largest real-term contraction in any major spending category. Moreover, the effects of wartime are not uniform across the regions. Direct war costs have fallen heaviest on frontline war-burdened regions, while military-industrial regions have captured a defence-wage windfall. Commodity exporters face a collapsing revenue base, while peripheral regions remain structurally transfer-dependent. A supplementary section documents Russia's attempts at fiscal absorption of the four illegally occupied Ukrainian territories.

Keywords: Russia; economy; budget; war; regions (search for similar items in EconPapers)
JEL-codes: H56 H72 H77 P26 R11 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitb:342403

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