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This study analyses the causal factors of fall in Russian farm output focusing on financial determinants. Translog production function is estimated on panel of 17653 large-scale farms for 1996-1998 period using fixed-effects and accounting for inter-regional climate differences. Output elasticities are analysed for sub-samples of crop and animal producing farms. The reserarch findings show that budget transfers to the farms are inefficient and result in taxation of farms. Farms are operating under the soft budget constraints that have to be removed to improve farm production performance.

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