What Kept the Russian Federation Intact? Testing the Internal Exit Model of Buchanan and Faith

This paper uses the data on intergovernmental transfers in the Russian federation over 1995-2000 to test the theory of internal exit. The model predicts that the central government would use fiscal transfers to appease rich regions and stave off secession. My findings are broadly consistent with the theoretical predictions. High income regions have indeed received generous transfers in 1995 to 1998. However, fiscal appeasement with transfers seems to have stopped in 1999-2000. The results confirm the theoretical findings that differences in incomes across regions can be a powerful separatist force when secessions are not institutionally foreclosed