Abstract: The article is devoted to the analysis of the role of fiscal federalism in reducing interterritorial differentiation of regions. The authors make a conclusion that the applicable system of allocation of taxes between different budget levels is irrational. They reasonably conclud that a significant centralization of tax revenues at the federal level increases interterritorial differentiation of regions, reduces sufficient incentives to develop their own revenue base and increases the volumes of incoming financial flows between the regions and federal authorities as well as between municipal units and regions. Based on the system approach and with the help of the SWOT analysis the authors describe the features of the current system of allocation of taxes between budgets of different levels in the Russian Federation. As a result of the research carried out, the authors reveal the defects of the current Russian taxation system. They make a reasoned conclusion that the defects of the Russian model of fiscal federalism is largely due to the lack of a comprehensive approach to developing the taxation system. Moreover, not all complex relations between participants of social relations arising in the process of imposing and paying taxes are taken into consideratin. The lack of an integrated approach to the establishment of the Russian taxation system exacerbates the economic and social contradictions, outflow of capital abroad and development of the shadow economy.