Institutional mechanisms of decentralization of economic power in the conditions of global financial transformations: theoretical and applied aspects

Abstract

The article examines decentralization, a complex process of institutionalization that aims to transform public economic management by transferring authority from central authorities to territorial communities. It is proven that economic power is the dispositive capacity to make decisions that influence the distribution of resources and the vectors of regional development. The sustainability of decentralization requires the simultaneous strengthening of formal (legislative) and informal (public control, transparency, anti-corruption monitoring) institutions. It is argued that, under conditions of global financial transformations, economic power and its institutions require the introduction of a two-tier model of intergovernmental fiscal relations (State – Community) to eliminate financial imbalances, enhance transparency, and maximize the approximation of public services to the population. The study reveals a disbalance between the revenue and expenditure powers of local self-government authorities and the institutional inadequacy of the horizontal financial equalization mechanism. The primary forms of transferring authoritative powers – deconcentration, decentralization, and devolution – are explored, with an emphasis on fiscal decentralization as the central institutional mechanism for transmitting economic power. Two key aspects characterize the dual function of budgetary decentralization: it enhances the efficiency of service provision by adapting to local needs, and it creates incentives for communities to expand their revenue base and attract investment. It is determined that without sufficient fiscal powers, other forms of decentralization remain merely declarative. The highest level of institutionalization is achieved by granting territorial communities the right to independently establish the rates for local taxes and fees, ensuring a direct link between political decisions and fiscal responsibility. The principles of ecological security are revealed as competition among communities encourages them to integrate environmental standards into investment-attracting strategies, develop green technological hubs, and reallocate resources in favor of ecologically oriented projects. In the context of global financial transformations, prospective directions for further research – to ensure the transition from formal autonomy to the genuine financial self-sufficiency of communities – are identified as: enhancing the financial self-sufficiency of territorial communities, digitalization of monitoring and management processes, and developing managerial competencies about the principles of ecological security and inclusivity. Keywords: institutionalization; fiscal decentralization; local self-government authorities; finance; effects of decentralization; project financing; state credit programs; ecological security.