In order to get prepared for participation in the discussion of the questions, write a short essay on the following:

a) Your understanding of fiscal federalism.

(Use: levels of government, taxation, revenue-raising powers, control over expenditure, autonomy of local government)

b) What is the federal government responsible for?

(Use: defence, law enforcement, universities, national parks, road construction)

c) What are the regional and local governments responsible for?

(Use: construction, local environmental issues, local enterprises, cultural institutions)

Ex. 15. Prepare a short talk on the following:

a) Changes in Russian fiscal picture accompanying the structural transformation of the Russian economy since 1992.

b) What do you think of the efficiency of fiscal management in Russia? A large share of government revenues and expenditures are not included in the budget, which violates the integrality and universality principles of government finance. Say what you think of extrabudgetary funds.

c) What is your idea of an effective fiscal policy?

d) How should intergovernmental fiscal relations in Russia be developing? How can they be streamlined?

Ex. 16. Quote examples from financial publications, newspapers, TV programmes to illustrate fiscal problems some countries are facing. How do they resolve them?

Reading practice

Ex. 17. a) Read the article quickly and find the definition of a country's balance of payments and the explanation of what the "current account" and "capital account" are.

b) Reread the article more carefully and compare the facts about the UK and the US with the situation in Russia.

Balance of Payments

Balance of payments is a country's set of accounts with the rest of the world, reflecting the relation between the payments of all kinds made from one country to the rest of the world and its receipts from all other countries. The accounts can be divided into the current account and the capital account. The current account is that part of the balance-of-payments account which shows all payments made or received in respect of goods and services, including payments of interest on past lendings or borrowings.

Thus, the current account or the balance of trade consists of several items:

• Visible trade is the imports and exports of tangible goods such as plant and machinery, consumer goods, raw materials.

• Invisible trade is trade in services such as banking, insurance, transportation and tourism.

• Transfer payments are things like the remittances of migrant workers to their homeland and the payment of dividends and interest to foreign companies, governments and international organizations.

• Unrequited exports are exports which are not exchanged for current imports, but the value of which pays interest on loans raised abroad, or profits on investment made in the home country by foreigners.

The capital account is that part of the balance of payments account which shows all payments made or received by way of settling old debts or creating new debts. It deals with financial transactions. The capital account consists of long-term investment – either direct foreign investment (e.g. a company in one country buying a company in another), or portfolio investment (e.g. a foreigner buying shares on Wall Street) – and short-term capital flows of "hot money".

Many countries are faced with a severe balance-of-payments problem which arises from different local circumstances.

Britain, for instance, is a densely populated island and it has few natural resources left. Britain has problems to supply industry with its requirements. They have to import large quantities of food, minerals, timber, etc. In exchange, they sell large quantities of manufactured goods. Thus, the balancing of imports and exports is a permanent problem to the Government. The Treasury keeps the balance of imports and exports constantly under review.

The visible trade balance is almost always an adverse one and they should be permanently in debt to other countries were it not for the invisible items which are a second source of foreign earnings.

Britain's surplus on invisible earnings arises partly from their traditional skills and services, particularly in commerce, banking, insurance and finance. It also arises from Britain's overseas holdings of property and business enterprises. Besides, in Britain, with its large merchantile marine the earnings from shipping are an important source of foreign revenue.

In the US, exports of manufactured goods and farm goods are more than offset by imports of raw materials, expecially oil.

Governments may influence the balance of payments through measures of fiscal policy or monetary policy designed to affect levels of domestic demand or interest rates.

Words you may need:

balance of payments платежный баланс

current account текущий счет

capital account счет движения капитала

visible trade видимая торговля

invisible trade невидимая торговля

transfer payments трансфертные платежи

remittance n перевод (денежный)

unrequited exports некоммерческий экспорт

to settle a debt урегулировать долг

densely adv плотно, густо

balancing n сбалансированность

invisible earnings поступления от невидимого экспорта

merchantile marine торговый флот

offset v компенсировать, сводить на нет

Ex. 18. a) Read the article quickly and underline the parts about the challenge the transition economies face and the constraints affecting the ability of the governments to meet the challenge.

b) Reread the article more carefully and pick out facts explaining the changes in the social sphere in comparison with the past and the recommendations of international experts.