Impact of fiscal decentralization on local economic development

Abstract

<strong>Abstract</strong><br> Many reforms have been undertaken in local governance after the collapse of the<br> totalitarian, centrist and bureaucratic regimes in Central and Eastern Europe. Albania<br> has demonstrated that decentralization is a major development tool. More than two<br> decades of decentralization activities have revealed that the decentralization process has<br> brought about changes in the operation of institutions and delivery of services, even<br> though this change has taken place gradually. Fiscal decentralization is one of the three<br> dimensions that characterize the decentralization process. Local finance issues are an<br> everyday topic in countries in transition and should be addressed by means of an approach<br> that favors consolidation of local autonomy. Local governments in Albania have lacked,<br> and continue to lack, the fiscal capacity to deliver on the promise of decentralization<br> to improve public services and to promote and nurture local economic development.<br> Decentralization can promote economic development and improve citizens’ welfare<br> and living standards when service delivery and the quality of the decisions over how<br> public resources are deployed are improved, but local governments remain hampered<br> by inadequate transfers from the central government and from restraints imposed on<br> various revenue-generating options. However, inadequate financial instruments,<br> especially those of intergovernmental transfers, have affected regional disparities. In this<br> paper, through comparative analysis, analyzing a part of the Region (Qark) of Lezha’s<br> LGUs, economic development indicators, will approve the need for reform of these LGUs’<br> financial instruments in order to narrow the gap of regional disparities in Albania.