TRANSFORMATION OF INTERGOVERNMENTAL FISCAL RELATIONS IN UKRAINE UNDER THE INFLUENCE OF DECENTRALIZATION AND POST-WAR RECONSTRUCTION

Abstract

The article presents a comprehensive study of the transformation of intergovernmental fiscal relations in Ukraine under the dual influence of the fiscal decentralization reform of 2014–2020 and the unprecedented wartime shock of 2022–2025, alongside the emergence of a donor-conditional post-war reconstruction architecture. The author delineates the basic categories: intergovernmental fiscal relations, fiscal federalism, fiscal and budgetary decentralization. The author substantiates the thesis that the Ukrainian reform implemented predominantly budgetary rather than fiscal decentralization due to the dominance of shared taxes without local control over the base and rate. The impact of Law No. 3428-IX, which redirected the «military» personal income tax to the state budget from 1 October 2023, and the freezing of the reverse subvention is analyzed as an institutional precedent that distorts horizontal equalization. Growing territorial disparities are identified between the capital (39 % of municipal-level revenues in 2024), western agglomerations, and frontline communities that lost up to 45 % of revenues. The article reveals the risks of a «two-channel» community financing system through the Ukraine Facility of 50 billion euros for 2024–2027, the World Bank SURGE programme, and the European Investment Bank instruments. The author proposes a hybrid model of transformation of intergovernmental fiscal relations involving a differentiated PIT allocation rate depending on the status of the community, the replacement of the reverse subvention with a territorial solidarity fund based on a multifactor distribution formula, and an integrated project cycle with external donor instruments. Six substantive theses concerning the further architecture of the system are formulated with reference to the fiscal rules of the European Union and the subsidiarity principle of the European Charter of Local Self-Government. Particular attention is paid to the institutional strengthening of the meso-level following the Polish experience of establishing regional accounting chambers and associations of self-government.