The Per Capita Funding Trap: Economies of Scale and Regional Inequality in Russian Social Expenditure

Anastasia E. Sudakova 1, 2, Jing Zhou2

1 Institute of Economics, The Ural Branch of Russian Academy of Sciences, Yekaterinburg, Russia
2 Ural Federal University named after the First President of Russia B.N. Yeltsin, Yekaterinburg, Russia

Abstract

The heterogeneity of Russian regions in terms of socio-demographic and economic indicators exacerbates the challenge of identifying instruments which, on the one hand, can help to bridge disparities and achieve general welfare, and, on the other, optimise public expenditure. The theoretical framework for this study is the theory of economies of scale, which justifies the application of policy instruments based on fundamental assumptions relating to the size of the territorial unit, its population density, the efficiency of governance and the non-linear nature of per capita expenditure. The study aimed to identify a relationship between population size and per capita expenditure using piecewise linear regression, and to determine the population thresholds at which maximum returns are achieved and the ‘budget plateau’ effect sets in. Based on an analysis of data from the consolidated budgets of the constituent entities of the Russian Federation by functional areas ((1) education, broken down into the following sub-sectors: pre-school, general and secondary vocational education; (2) healthcare), a non-linear relationship was identified between per capita expenditure and the size of the target cohort. The results obtained confirm the operation of the per capita funding mechanism (a high correlation coefficient between expenditure and population size) and the absence of economies of scale (a weak relationship between per capita expenditure and population size). The hypothesis was not confirmed, but evidence was found for the existence of a ‘per capita funding trap’, which negates the non-linear nature of social expenditure; thus, the high correlation of total expenditure coupled with a low correlation of per capita expenditure demonstrates that the current model for the distribution of transfers ignores the concept of the indivisibility of resources. As a result, a structural contradiction arises between the principle of budgetary equalisation and the actual cost function. In regions with large populations, the per capita mechanism provides relative economies of scale, whereas in sparsely populated regions it leads to underfunding and the emergence of inter-regional disparities in the provision of socially significant services. The findings suggest that, in order to mitigate regional inequality, the mechanism for financing social expenditure needs to be revised.

Keywords

economies of scale; budget expenditure; budget efficiency; budgetary system; expenditure on education; expenditure on healthcare; consolidated budget; state budget; regional inequality.

JEL classification

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Acknowledgements

This research was carried out with funding from Russian Science Foundation grant No. 25-18-00465, ‘An ecosystem approach to sustainable regional development: synergies between education, industry and social policy for the creation of competitive territories’ https://rscf.ru/project/25-18-00465/

The authors would like to thank their colleagues at the Centre for Economic Security, Institute of Economics, Ural Branch of the Russian Academy of Sciences, for their participation in discussing the research findings during a scientific seminar.

About Authors

Anastasia Evgenievna Sudakova

Candidate of Economic Sciences, Associate Professor, Senior Research Fellow, Institute of Economics, The Ural Branch of Russian Academy of Sciences, Yekaterinburg, Russia (620014, Yekaterinburg, Moskovskaya street, 29); Associate Professor, Ural Federal University named after the first President of Russia B.N. Yeltsin, Yekaterinburg, Russia (620002, Yekaterinburg, Mira street, 19); ORCID https://orcid.org/0000-0002-3791-1129 e-mail: a-chusova@mail.ru

Jing Zhou

Post-Graduate Student, Ural Federal University named after the first President of Russia B.N. Yeltsin, Yekaterinburg, Russia (620002, Yekaterinburg, Mira street, 19); ORCID https://orcid.org/0009-0009-2959-9209 e-mail: 2019854620@qq.com

For citation

Sudakova, A.E., Zhou, J. (2026). The Per Capita Funding Trap: Economies of Scale and Regional Inequality in Russian Social Expenditure. Journal of Applied Economic Research, Vol. 25, No. 3, 879-910. https://doi.org/10.15826/vestnik.2026.25.3.029

Article info

Received April 9, 2026; Revised June 22, 2026; Accepted July 14, 2026.

DOI: http://dx.doi.org/10.15826/vestnik.2026.25.3.029

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