System of financing of local self-governments for their sustainable functioning and development

Abstract

In this paper we present the main features of the current system of financing of local self-governments (LSG) in Serbia and propose the principles and directions for its further improvements, given the current level of decentralization. For this purpose, we analyzed the current legal framework in the area of LSG jurisdiction on the one hand, and model of financing of LSGs, on the other. In addition to that, we tried to depict a financial position of LSGs and local public utility companies (LPUCs) using financial data for the period from 2011 to 2013, in order to design principles for systematic regulation of this area, the latter being of particular importance in the dominant context of fiscal consolidation policy. The general conclusions and recommendations point to the necessity to design such a concept of financing of LSGs which has a firm link between jurisdiction, i.e. type of public services provided by LSG level, and sources for financing of these jurisdictions/services - aligned in terms of quality and availability of these services with the objective possibilities. Analysis of the financial data indicates that there is relatively firm evidence in support of the conclusion that the main source of bad financial position of certain LSGs reflected in a high level of outstanding stock of payables to suppliers, lies in the inappropriate financing of public utilities and local institutions founded by LSGs.