In a country as large and diverse as the Russian Federation, the economic environment will always depend fundamentally on the policies and activities of regional and local state bodies and officials. Consequently, distortions in the incentives of subnational officials can have an adverse effect on almost every area of economic and institutional development. Chapters II and III of this survey highlighted two such areas: the energy sector and the development of small business and entrepreneurship. Incentives in Russian regional and local state organs have suffered from problems in fiscal federalist relations. Consequently, the previous OECD Economic Survey of the Russian Federation (OECD, 2000) placed special emphasis on fiscal federalism, stressing these issues as central to any successful structural reform strategy.185 A subsequent OECD paper examined some later changes and policies in Russian interbudgetary relations, and outlined more specific possible directions for reform.186 The past few years have been very eventful for fiscal federalism in Russia, although some of the changes and proposed reforms remain problematic and highly controversial.