This paper analyzes the institutional constraints on the effective implementation of the LEADER/Community-Led Local Development (CLLD) approach in Bulgaria and proposes a concrete institutional model for overcoming them. The study proceeds from the premise that the approach holds substantial potential as a territorially oriented instrument for local development, but that its effectiveness is limited by a structural contradiction between the decentralized conceptual logic of LEADER/CLLD and the centralized institutional framework of its national implementation in Bulgaria. The analysis shows that the current distribution of functions between the Ministry of Agriculture and Food, as Managing Authority, and the State Fund “Agriculture” – Paying Agency creates a structural asymmetry, whose measurable consequences are systemic delays in contracting and disbursing project funds, limited procedural flexibility, and insufficient specialized administrative capacity. As an institutional response to these deficits, the paper proposes the creation of a specialized executive agency under the Rural Development Programme, with functions covering the administrative management of projects, methodological support for Local Action Groups (LAGs), monitoring and evaluation, and coordination of multi-fund financing. Two options for the institutional positioning of the agency are examined — as an independent structure under the Ministry, or as a specialized unit within the existing administration — and these are compared with established European practices (Austria, Germany, Ireland). The study concludes that overcoming the structural contradiction requires not a change in the conceptual philosophy of the approach, but a targeted institutional reconfiguration aimed at increasing the autonomy of Local Action Groups.
Marzanna Poniatowicz, Paweł Konopka, Agnieszka Piekutowska
The paper refers to the twelve principles of fiscal decentralization, proposed by Roy Bahl (Bahl’s Rules for Fiscal Decentralization – BRfd), with special emphasis on the first Bahl’s rule (regarding the comprehensiveness of the fiscal decentralization, CSfd). The purpose of the research was to estimate the level of CSfd in OECD countries. Thus, the objective was to construct a synthetic measure of the first Bahl’s rule (CSfd) which constitutes the value added of this research. The goal was also to rank countries as the main idea was to advance empirical assessment in the field of fiscal federalism and to provide practical guidance for shaping public finance policy including policies on the collection of public revenues and the allocation of public expenditure. This directly corresponds to the research problem of the very limited number of tools available for measuring fiscal decentralization. Based on Hellwig’s method of linear ordering two rankings were developed using the Euclidean metric and the Mahalanobis metric. The results indicate that the most comprehensive fiscal decentralisation systems in 2022 were found in the Slovak Republic, Switzerland and Canada (ranking based on the Mahalanobis metric). When the Euclidean metric is used, Switzerland emerges as the leader, followed by Spain and Austria. First published online 4 June 2026
The European Union faces a structural confidence crisis in 2026, characterised by stagnating Eurozone growth (below 1.2%), deepening North–South fiscal tensions, East–West security divisions, and a fundamental redefinition of the transatlantic security relationship. Existing centralised coordination mechanisms have proven too slow and insufficiently adaptive to manage these simultaneous pressures. This paper introduces the European Octopus Model — a strategic geopolitical framework that reconceives EU governance through four geographically specialised "legs" (South, East, North, West), each leveraging its proximate regional environment, coordinated by a single AI-powered digital governance platform: the European Octopus Coordination Council (EOCC). The model adopts a Direct Benefit First principle (70% of project returns to the executing state; 30% to a collective fund), supported by a self-financing Hybrid Crisis Reserve Fund and a network of four Strategic Industrial Cities operating as Special Economic Zones. The framework is grounded in the Global Reflection Economic Theory (GRE), which treats institutional trust as a measurable economic asset and positions citizen co-production — rather than top-down institutional imposition — as the primary driver of sustainable productivity. Quantitative projections, drawing on IMF, IEA, ECB, and Eurostat baselines, suggest that full model implementation could raise Eurozone GDP growth to 1.7–1.9% by 2027 and 2.0–2.3% by 2028, against a baseline of 1.0–1.2%. The paper further provides a three-scenario comparative analysis, a 2026–2028 implementation roadmap, and an honest assessment of governance transition risks. "This framework builds upon and complements my previous geopolitical analysis developed in 'Europe in the Dark Decade' (Sara B., 2025)"
This paper explores the relationship between fiscal decentralization, green finance, and the digital economy in driving sustainable development, using a balanced cross-country panel dataset spanning 2014–2022, for 29 European countries. Employing dynamic panel estimation techniques, including system generalized method of moments (GMM), the research investigates how fiscal decentralization, green finance, and the digital economy (each of them individually and through interaction mechanisms), dynamically shape sustainable development performance in the presence of endogeneity and temporal persistence. The findings reveal strong inertia in sustainable development, which depends on its previous level. Fiscal decentralization has complex effects: revenue autonomy supports sustainability, whereas expenditure autonomy may undermine it, suggesting differences in how resources are used efficiently at the local versus central levels. Digitalization acts as a catalyst, boosting the effectiveness of environmental taxes and enhancing local spending outcomes. However, if fiscal administrations are not digitally integrated, digitalization may weaken the benefits of decentralized revenues. This study advances the literature by integrating fiscal, financial, and digital views, providing new insights into policy coordination.
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.
Dobrotă Gabriela, DAN NICOLETA, BUTĂNESCU-VOLANIN REMUS-CONSTANTIN
Public finance sustainability represents a fundamental pillar of macroeconomic stability and a key determinant of the ability of states and local communities to cope with major economic shocks. Against the backdrop of successive crises over the past two decades—financial, health-related, and geopolitical—the relationship between fiscal sustainability and community resilience has gained increasing attention in both economic scholarship and European institutional debates. The aim of this article is to examine the linkage between fiscal sustainability and the resilience of local communities through an integrated approach that combines cross-country analysis at the European Union level with an in-depth assessment of Romania’s experience. The study relies on Eurostat data covering the period 2015 2023 and focuses on fiscal indicators, the degree of fiscal decentralization, and the capacity of local communities to translate public resources into economic and institutional resilience. The methodological framework includes descriptive and comparative analysis, alongside the construction of a composite Community Resilience Index. The empirical findings reveal substantial disparities across EU Member States and indicate that fiscal sustainability, when accompanied by functional fiscal decentralization and strategically oriented public investment, is associated with higher levels of community resilience. In the case of Romania, the gap between a relatively moderate level of public debt and comparatively low community resilience is largely explained by limited local fiscal autonomy and persistent institutional constraints.
Abstract This chapter discusses the Albanian model for the equalization of financial disparities between urban and rural municipalities, especially after the 2014 Territorial and Administrative Reform (TAR). This reform reduced the number of local governments, merging 373 rural and urban entities into 61 larger municipalities. It aimed to streamline and harmonize service provision across regions and municipalities, but challenges persist due to the limited financial resources of local governments. The chapter explores the country’s intergovernmental financial framework, including recent reforms, which enhanced municipal responsibilities and financing. Despite reforms Albanian municipalities are heavily reliant on intergovernmental transfers, with unconditional grants playing a crucial role in equalizing financial resources. While the stability and allocation of the unconditional grants has improved since 2017, rural municipalities still struggle due to higher service costs and lower fiscal capacity compared to urban centers. There are also major differences between larger urban areas and the capital, Tirana. The chapter concludes that while Albania has made strides in decentralization, further reforms are necessary to address the ongoing fiscal inequalities between urban and rural local governments, underscoring the need for more robust equalization and financing mechanisms to bridge the gap between urban and rural municipalities.
In modern conditions, taking into account decentralization, martial law and economic instability in Ukraine, local communities are forced to look for alternative sources of financing to ensure sustainable development. One of the most effective tools for attracting resources for the implementation of socioeconomic, infrastructure and humanitarian projects is international grant financing. Grants are provided by international organizations, foundations, governments and private donors to implement programs that contribute to the development of social, scientific, technological, environmental and other areas of strategic importance. Unlike loans, grants are free financial assistance and are provided on a competitive basis and with clearly defined conditions, including the use of funds and reporting on results. The article studies the impact of international grant financing on the economic development of a local community, namely the Bakhmach urban territorial community. The theoretical foundations of international grant financing are considered; the dynamics of budget revenues and expenditures of the community are analyzed; an assessment of the contribution of grant funds to the development of individual areas (education, healthcare, social protection, etc.) was carried out. A practical analysis of the activities of the Bakhmach urban territorial community showed that international grant funding has a positive impact on economic development, modernization of infrastructure, improvement of the quality of education and medicine, expansion of social protection and activation of cultural and sports life. Thanks to the grants involved, the community managed to implement a number of important initiatives, including the construction of a shelter for a lyceum, modernization of educational offices, creation of a crisis room for victims of domestic violence, updating medical equipment, repair of cultural centers and other projects that directly affected the well-being of the population. The prospects for further research in this area are the development of practical recommendations for improving the interaction between local authorities and international donors.
Over the past decade, digital assets have transformed from a niche technological experiment into a mainstream financial instrument, attracting institutional investors, governments, and retail traders. With the increasing adoption of blockchain technology, cryptocurrencies are reshaping traditional financial systems, offering new mechanisms for wealth creation, transaction efficiency, and decentralized financial services. This article explores the profit opportunities and risks associated with the cryptocurrency market, highlighting its rapid evolution and significant impact on the global financial landscape. A key focus of this study is the investment potential within the cryptocurrency sector. It examines various opportunities, including short-term gains driven by market volatility, long-term asset appreciation, passive income through staking, and innovative financial models within decentralized finance (DeFi). However, the cryptocurrency market is fraught with substantial risks alongside these profit opportunities. Extreme price fluctuations remain a defining characteristic, often leading to significant losses for uninformed investors. Regulatory uncertainty poses another challenge as governments worldwide struggle to develop clear frameworks, with potential legal restrictions impacting the market’s stability. Security vulnerabilities, including exchange hacks, smart contract exploits, and phishing attacks, add another layer of risk, making cybersecurity a crucial concern for market participants. Furthermore, the lack of consumer protection mechanisms means that investors may have little recourse in cases of fraud, theft, or technical failures. By analyzing these factors, this article provides a balanced perspective on the potential rewards and dangers of investing in digital assets. The study is supported by academic research, industry reports, and real-world market trends, offering valuable insights for investors, policymakers, and financial analysts. As cryptocurrencies evolve, understanding their opportunities and risks is essential for making informed financial decisions in this rapidly changing landscape.
PURPOSE: The purpose of this concept paper is to address the role of governance in the process of regional transition, by analyzing the concept of transition and its implications for regional sustainability, and highlighting their socio-technical, institutional, and governance dimensions. METHOD: This study is based on the selected review of the literature providing insights into sustainability transitions, regional development, and decentralization. FINDINGS: Transition is a long-term, multidimensional shift shaped by innovation, societal pressures, and governance structures. Regional transitions integrate development and sustainability agendas but often face barriers such as technocratic bias, limited social participation, and misaligned public finance. Decentralization models ‒ political, fiscal, and administrative ‒ shape how regions navigate these transitions. ORIGINALITY/VALUE: The study synthesizes transition theory with regional development and decentralization frameworks, offering an integrated perspective on how governance arrangements influence sustainable regional transformation. KEYWORDS: governance, regional transition, decentralization. JEL: R11, R58.
The scientific hypothesis of the article assumes that inequality in access to digital infrastructure, inequality in digital skills and digital literacy, inequality in the use of digital technologies are new forms of social stratification and forms of manifestation of various digital divides. We argue that digital inequality objectively acquires new forms of manifestation. Digital and spatial inequality coexist in at least two forms of manifestation – digital periphery and digital gentrification. Digital periphery is the result of the formation of territories with limited access to digital infrastructure, which in the context of digitalization of economic processes inevitably leads to economic marginalization. An analysis of the literature has shown that digital gentrification is considered as a consequence of the increase in the cost of housing in areas with developed digital infrastructure due to the internal migration of digital workers. We believe that this approach to defining digital gentrification requires further study, because in the era of digitalization, digital technologies not only change the physical space of cities, but also create new forms of spaces – digital environments, digital platforms, digital communities. This allows us to develop the concept of "digital gentrification" as a phenomenon that describes the processes of displacement, exclusion and transformation in digital space. The purpose of the study is to determine the essence of digital gentrification and its typology, which will allow us to characterize the positive and negative consequences of gentrification processes for inequality from the perspective of socio-spatial transformation. We define the digital environment as the communication environment of digital devices and the environment of digital inequality. By considering the digital environment as the basis of a complex network of digital interactions, we can better understand the differences that arise in access to technologies, their use, and technology-related skills. In the context of spatial inequality, the household is a key entity, since its socio-economic situation directly depends on spatial opportunities: access to infrastructure, jobs, social services, environmental conditions, etc. The spatial localization of the household determines its inclusion in socio-economic processes and opportunities for development. In the context of digitalization, the concept of "household" is significantly modified. Under the conditions of digital transformation, traditional households are being modified into “digital communities” (groups of individuals united by common interests or goals in the digital space, who carry out economic activities) or “virtual collectives” (temporary associations of individuals for the implementation of short-term projects such as crowdsourcing initiatives) or into decentralized autonomous organizations (forms of collective economic activity based on blockchain technologies and smart contracts). Hybrid households are being formed – distributed households. We propose to consider digital gentrification as a process of transformation of digital interaction spaces and digital platforms, which is characterized by a change in the nature and intermediary functions of the digital environment, accompanied by a revaluation of digital assets in the interests of new user groups or data-driven companies, marginalization or displacement of initial users, forced simplification of digital specialization due to the development of ICT, which allowed us to distinguish platform gentrification, spatial digital gentrification, infrastructure digital gentrification, algorithmic gentrification, cultural digital gentrification, informational gentrification, economic digital gentrification, professional digital gentrification, virtual-spatial gentrification.
Can blockchain-based decentralized autonomous organizations (DAOs) revolutionize regional integration, or is it an evanescent promise? This research addressed the crisis of confidence that has been haunting institutions like the African Union (AU) and the European Union (EU), whose central authorities could not deliver on transparency and inclusivity. The objectives were to unbundle DAOs' potential, assess their place in regional architectures, and propose a hybrid governance model. Mixed-methods with qualitative case analysis of the AU, EU, and Aragon DAO complemented with 30 interviews of stakeholders and comparison grounded the research. Findings showed DAOs' potential in making transparency more possible, as the $10 million Aragon's treasury example showed, and enrolling people in it but with accompanying hurdles from digital divides (37% internet reach in Africa) and resistance from elites. A hybrid solution that stacked DAOs for open decision-making, traditional control for stabilization, and interface modules for useability emerged. Five proposals that involved piloting DAOs for transparency, modeling inclusive voting, investing in infrastructures, creating regulations, and fostering cultural dialogue charted the way forward. This research compelled regional leaders to act with haste, coupling code with human trust to make government inclusive. It enriched theory and practice of contemporary governance and foresaw an achievable world where oneness was not elite-driven but common.
An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact.
Oana Camelia Iacob Pargaru, Carmen Elena Spiridon, Ovidiu Andrei Cristian Buzoianu, Nicolae Gabriel Uta
Abstract When a Romanian entrepreneur is looking for European funds to finance his business, it is essential for him to understand the terms of the loan and the details about the financier, just like in any other loan agreement. The aim of this article is to present the challenges of projects implemented with funding from European Union funds. The research methodology involved a literature review followed by an analysis that examines different categories of public structures, including deconcentrated or decentralized units of central public administration, local public administration units, autonomous kings, state commercial companies or local authorities, units of state education and research, hospitals, and intercommunity development associations. The findings of the research highlighted the specific types of organizations that received financial support from EU-funded programs. Thus, the funds allocated to Romania by the European Union, considered from the point of view of the investment strategy and their non-refundable nature, constituted a substantial asset for the development of the Romanian economy and society in the short, medium and long term. In addition, these funds represented an element of budgetary sustainability. The results of the projects that were financed from European funds are numerous. Each of these is an illustration of a successful effort that has the potential to give rise to additional initiatives of equal significance in the context of the new opportunities that the European Union will fund.
Dr.Natasha Hoda, Msc.Majlinda Velçani, Prof. Asc.Dr. Parashqevi Draçi, Blerina Sadiku
<p style="margin-left:0cm; margin-right:0cm; text-align:justify"><strong>The financial situation of local government units in the Albania, even though it has improved compared to the decades ago, is still delicate and full of challenges for the future. Financial resources, without neglecting the capacity building of th
Local taxes with fiscal power for local authorities arte gradually being dismantled by State tax reductions which lead to the abolition of these taxes. The financing of decentralization is therefore increasingly dependent on the sharing of national tax revenues. The impossibility of local fiscal autonomy prompts a rethinking of the complex fiscal relations between the State and local authorities. The re-creation of a local fiscal power would go through consultation and co-decision between the State and the local authorities but also, in particular, with the crisis of representative democracy, through a better association of local elected representatives and citizens. However, veticality today characterizes the relationships between these actors.
Over the past decade, technological changes have had a strong influence on society and science worldwide. Information and communications technology, big data, and artificial intelligence are only some digital innovations that have been transforming the research and practice of public policy. The impact of such technologies has recently become even more noticeable, for instance, through the prominence of machine learning chatbots. This raises several questions such as how to adapt institutions and regulatory processes to digital transformation, how such innovations can be used to enhance the design and implementation of policies, and how public policy and administration scholars should understand and make use of technologically driven futures. This third jubilee issue of Review of Policy Research (RPR) comprises six original articles which present a range of theoretical and empirical contributions to answering such questions. In the opening article, Kim et al. (2023) address the rising popularity of policy labs and examine to what extent they enhance the understanding and addressing of critical policy problems. To this end, they reviewed over 130 data-based policy labs across the world and their contribution to policy capacity. Most policy innovation labs are located in Europe and North America, initiated by governments or universities, and use various data types with a dominance of administrative data. Following the policy capacity framework by Wu et al. (2018), the authors differentiate between analytical, operational, and political policy capacity at the individual, organizational, and systemic level. The findings show that data-based policy labs enhance analytical and operational policy capacity at different levels but that they have only limited effects on providing political-based policy capacity. The article concludes with a future research agenda and suggestions for strategies to improve political capacity within policy innovation labs. These include promoting individuals' policy acumen as well as strengthening the environment for collaboratively learning about policy processes and political values on the organizational and systemic levels. Torfs et al. (2023) contribute to this issue with an application of the Punctuated Equilibrium Theory (PET, Baumgartner et al., 2009, 2018) to analyze how institutional shifts impact digital policy change. Following an evolutionary perspective, the authors explored two decades of Belgian federal digital policy and its periods of policy stability (equilibrium) and change (punctuation). To this end, they analyze explanatory factors for negative and positive feedback mechanisms and the role of policy entrepreneurs. The methodological approach combines a distributional application of the PET with an explaining-outcome congruence case study, using documents, interviews, data on media coverage, regulation, and budgets. The authors illustrate that digital policy in Belgium is characterized by longer periods of stability and two periods of punctuation. It is shown that institutional shifts did impact Belgian digital policy. However, their explanatory power is limited as they lead to both positive and negative feedback mechanisms. More decisive factors in explaining digital policy (in)stability are attention allocation, policy entrepreneurs, and the political system. Torres and Fowler (2023) contribute to research on policy entrepreneurship with a study on the strategies bureaucrats used to change decision-making processes in the US National Aeronautics and Space Administration (NASA). More specifically, the authors investigate how individuals drove organizational re-thinking on public participation and initiated the adoption of participatory technology assessment (pTA) within the space agency. The analysis of public documents and interviews reveals three main entrepreneurial strategies that helped shift the status quo and support citizen interaction in program design. The paper shows that the entrepreneurs reached out to and connected audiences across organizations in small-scale meetings where they presented a positive, solution-oriented reinterpretation of the program. In this discourse, they took a mediating position to have control over the narrative and decision-making process. Therefore, policy entrepreneurs, program-related group formation, and framing played an important role in the initiation of policy change within NASA. Di Giulio and Vecchi (2023) present further evidence for the influence of policy entrepreneurs and group formation on policy change with a case study on the public sector digitalization in Italy. After failed attempts to adopt digital technologies in the Italian public sector, the digital transformation agenda launched in 2016 was the first one to effectively induce policy change, despite the political instability at that time. Following theory-building process tracing (Beach & Pedersen, 2013), Di Giulio and Vecchi operationalize mechanisms that may explain this success, with a specific focus on related institutionalization processes. For this, they empirically investigate Italian innovation policymaking from 1993 to 2021. The results show that the Italian government used several strategies to increase organizational capacity and coordination as part of the 2016 digital agenda. This included engaging and appointing new professionals, restructuring the roles of governing bodies, and establishing new governmental agencies for digital transformation. This helped to build a community of policy entrepreneurs accountable for public sector digitalization which further created a bandwagon effect among implementers. Mukherjee et al. (2023) analyze how regulatory actors and processes surrounding digital innovation influence the creation of collectively shared and institutionally supported ideas of technological futures. Building on the concept of sociotechnical imaginaries (Jasanoff, 2015), the authors conducted 33 interviews with regulators of two emerging technologies in the USA, namely the genome editing technology CRISPR-Cas9 and Connected and Autonomous Vehicles (CAV). The in-depth interviews were used to understand how involved actors envision technology-driven futures and the social structures that enable them. In both cases, experts related ideas on technologically driven futures to questions on institutional authority, technological novelty, and risk management. However, the CRISPR and CAV stakeholders' narratives also differed along these aspects. For instance, the authors found that interviewees' imagined futures reproduce their respective regulatory environments, including power relations and intraorganizational boundaries. Mukherjee et al. argue that such differences across regulatory sectors, including institutional arrangements, norms, and practices, influence the imaginary formation around technologies and how they shape the future. Zeng et al. (2023) present another study on digitalized administration processes with an analysis of platform governance in China. The authors elaborate on the advantages of platform-based organizational processes and reflect, however, that the concept of Government as a Platform (GaaP) has been less promising. Zeng et al. argue that the platform-enabled government (PEG) concept which aims to accommodate institutional boundaries is better suited to improve collaborative governance than the GaaP with its focus on eliminating boundaries. The authors test the implementation and impact of 123 PEG cases in China across three policy areas, namely, administrative review, law enforcement, and contact tracing. The results support that PEG is an effective form of holistic governance as it enables to integrate functions of multiple departments in one workflow while respecting institutional boundaries. For instance, PEG facilitates cross-boundary exchange while enabling officials to retain intellectual property rights. The study indicates that PEG is supported by decentralized political systems and middle-tier platforms.
2021 marked the official start of a post-Brexit era for the European Union (EU) since the United Kingdom (UK) had only fully withdrawn when the transition period lapsed on 31 December 2020. The transition period prevented the EU and the UK from falling off a cliff before a mutual Trade and Cooperation Agreement (TCA) was to be ratified and implemented into UK law by Parliament before 1 January 2021. This cumbersome process marked the pinnacle of a three-decades long period of European integration which saw the political architecture of the EU gradually shift from a system characterized by integration to one that is more succinctly marked by differentiation. Using Brexit and the Covid-19 pandemic as cases in point, we argue that differentiation has become the system property of the EU's institutional polyarchic architecture. While differentiation has sometimes been conceived as being mostly temporary in nature, we may think of a differentiation of the EU's political order as a permanent and systemic property. Differentiation is both an empirical and a theoretical phenomenon. Empirically, it has been on the rise ever since the ratification of the Maastricht Treaty in 1992. As Euroscepticism progressively became more mainstream, disintegrative tendencies feature more prominently in Europe's political order (Bátora and Fossum, 2020; Gänzle et al., 2020). Membership withdrawals or centrifugal moves away from the EU, such as Brexit or Switzerland calling off negotiations on a partnership agreement in 2021, have therefore been coined conceptually as differentiated disintegration (Schimmelfennig, 2018). Similarly, reverse processes of ‘de-differentiation’, such as the Danish people's decision in May 2022 to revert the former opt-out in EU defence (Politico, 2022), have occurred, too. Prior to the landmark process of Brexit, European integration generally followed the ‘ever closer union’ model – as famously stated in the preamble to the Treaty of Rome of 1957. Even so, European integration was never truly uniform but shaped by mechanisms of differentiated integration (Leuffen et al., 2022). In addition to policy-centred vertical differentiation (that is, the variation in the level of centralization across policies), such as most prominently in Economic and Monetary Union (EMU), the EU has encountered various forms of horizontal differentiation. This includes an internal dimension with EU countries opting out from certain policies both de jure and de facto (Hofelich, 2022), as exemplified by Denmark and Sweden's non-adoption of the common currency as well as an external dimension with non-EU countries, such as Norway and Switzerland, opting into selected policies (Leuffen et al., 2022). Today, the EU can therefore be considered as an institutionally polyarchic architecture of concentric circles with a core of club members surrounded by countries that have managed to negotiate opt-outs from specific policy areas; countries willing to join; and various neighbourhood agreements involving both European and non-European countries (for example, Gstöhl and Lannon, 2018). Studies of European differentiation have underlined that it is paramount to conceive of differentiation as a comprehensive phenomenon that is not tied to specific directions of either integration or disintegration (Gänzle et al., 2020; Leruth et al., 2022; Olsen, 2007). Yet, while differentiation was initially considered as a temporary phenomenon (through the concept of ‘multi-speed Europe’), we nowadays witness the emergence of permanent forms of differentiated political order(s) within the EU, for instance through the form of opt-outs from the Eurozone. This study suggests that forms of macro-level differentiated political order in the EU may lead to transformations at the meso-level, which in turn may affect the institutional robustness of the EU. Ultimately, differentiation may serve as a vehicle for the long-term sustainability and institutional robustness of the EU. This argument is supported by studies showing that the survival of international organizations (IOs) is associated with the size of their executive capacity (Debre and Dijkstra, 2020). This also suggests how institutional features of IOs may assume a paramount role of robust global governance. It is also necessary to emphasize the attractiveness of studying the robustness of a differentiated European political system in turbulent times (Ansell et al., 2017). Clearly, the robustness of institutions may be taken for granted during periods of stability (Olsen, 2007). During periods of turbulence or crisis, however, established institutions may become subject to contestation, requests for reform, and objects of scholarly studies. Rather than leading to fragmentation and dissolution of institutions, we maintain that manifestations of differentiation foster resilience of the political order of the EU. After a concise conceptualization of differentiation, we examine how the EU has dealt with both internal and external differentiation at the meso-level using Brexit and Covid-19 as cases in point. Second, in our view, differentiation is and will continue to be prominent in the years to come, hence we sketch out an institutionalist research agenda which suggests how macro-level differentiation – for example, with respect to polity-level differentiation – may lead to meso-level institutional responses. Finally, we close by discussing implications for the post-Brexit and post-pandemic future of differentiation. As a strategy of integration, the roots of differentiation can be traced back to a report produced under the direction of Leo Tindemans (1975), which laid the conceptual foundations of a ‘multi-speed Europe’ (Stubb, 1996). Yet, scholarly debates on differentiated integration only started in the early 1990s – against the backdrop of the legally enshrined British and Danish opt-outs in terms of currency union and defence for example. With subsequent discussions on further constitutionalizing forms of differentiated integration, the enhanced cooperation mechanism was introduced in the Treaty of Amsterdam. Considering these developments, Stubb (1996, p. 283) defined differentiated integration as ‘the general mode of integration strategies which try to reconcile heterogeneity within the European Union’ in terms of time, space, and matter. From a theoretical perspective, other scholars also focused on the scope and limits of differentiated integration in the EU (for example, de Neve, 2007; Holzinger and Schimmelfennig, 2012; Leruth and Lord, 2015; Schimmelfennig et al., 2015; Sitter and Andersen, 2006). The financial and economic turmoil of 2007–2008, subsequently followed by socio-economic and political unrests of many kinds, brought the EU into a new multi-faceted poly-crisis (Riddervold et al., 2021). The future of European integration became increasingly questioned, as domestic Eurosceptic actors pushed for reducing the scope of core EU powers, opt-outs or even withdrawing from the Union as a whole. Brexit eventually opened a new chapter in the study of differentiation (Leruth et al., 2019). Some of the recent literature on crisis, disintegration and differentiation in Europe also combines explanations based on collective actors' cost–benefit calculations – such as the promotion of equality of opportunity among EU members (Jones, 2018) and institutionalist explanations focusing on how crises are channeled through and mediated by pre-existing institutional frameworks and resources (for example, Bátora and Fossum, 2020). Brexit thus largely reinvigorated differentiation as a central focus of research in EU studies. In contrast to previous iterations of differentiation – which were exclusively used to qualify forms and grades of integration – the term has now come to be applied in instances of both integration and disintegration. Both growth and reduction of the level, scope and membership of IOs remain unequal and therefore differentiated. Differentiation applies to the institutional, policy and territorial dimensions of such processes. With regards to the institutional dimension, differentiation is relevant for grasping the settlement of both emergent organizations and organized systems. Institutions and organized systems are temporary sets of rules and procedures, demography, locations, beliefs and norms. Different approaches to differentiation are particularly helpful in conceptualizing the settlement of emergent political orders such as the EU that involve multiple tiers of authoritative decision-making. The EU has been depicted in a two-pronged way both as ‘a conceptual battleground and an institutional building site’ (Olsen, 2010, p. 81) with a varied mix of organizational forms, governance patterns and ideas about legitimate forms and speeds of integration. Institutional differentiation was eventually understood as ‘new institutional spheres [that] have split off from older ones and developed their own identities’ (Olsen, 2010, p. 142). From an institutional theory perspective, differentiation ultimately ensures a form of interdependence that ties institutional spheres together. In such a highly dynamic process of institutionalization, de-institutionalization and re-institutionalization, European integration is constantly being reconfigured. Varieties of organizational structures and institutional norms in the EU contribute to institutional change within EU member states. It has been observed that both intergovernmental, supranational as well as non-majoritarian institutions tend to encourage patterns of institutional differentiation. Egeberg and Trondal (2017) demonstrate that EU agencies have become vehicles for integrating regulatory bodies also from non-EU member states. In addition, they document an acceleration in the creation of new decentralized agencies over time not only in terms of numbers but also in terms of powers and quality. The ‘agencification’ of both EU (non)member-states and the EU administrations serve as an institutional infrastructure for differentiated administrative integration (Trondal, 2014) through a differentiated inclusion of administrative bodies from member and non-member states in EU governance. Central agencies in Switzerland, EEA/EFTA countries, candidate and neighbouring countries are offered access to EU decentralized agencies' management boards, leading the latter to become privileged fora for external differentiated integration (Lavenex, 2022). During the Covid-19 pandemic, EEA countries coordinated their response strategies with the European Centre for Disease Prevention and Control (ECDC). Since agency officials generally enjoy a considerable degree of independence from their states' central administration, and that their involvement in EU networks is thus relatively insulated from political intervention form their governments, they are highly sensitive to governance processes at different levels of government (Egeberg and Trondal, 2009). The result is a differentiated and semi-autonomous polycentric patchwork of memberships and associations in EU administrative networks. In March 2020, the global Covid-19 pandemic eventually hit Europe; it affected most policy domains of the EU and substantially put solidarity amongst member states to a test. Although the EU has only limited competence on public health, which remains largely under the control of member states (European Court of Auditors, 2021), the EU was criticized for its lack of coordination, for not acting immediately concerning medical equipment for Italy and not reintroducing internal borders (Wolff and Ladi, 2020). The EU's immediate health policy responses mostly rested on the use of pre-existing resources and institutions: the ECDC, the health emergencies system, the Joint Procurement Program (JPP) and the RescEU civil protection mechanism. The initial EU response to the crisis was differentiated partly because the ECDC was dwarfed by the many national agencies it was supposed to coordinate, the lack of an independent budget line, and its sole support by an administrative agency with no independent legal basis (Consumers, Health, Agriculture and Food Executive Agency, CHAFEA). As a result, member states responded quite differently to the crisis, largely reflecting different government systems, governance traditions, policy styles, attention structures and pre-existing crisis routines within each country (Askim and Bergström, 2021; Zahariadis et al., 2021). On the issue of fiscal support to struggling EU member states, an existing political division lingering from the Eurozone crisis between so-called ‘frugal’ Northern countries and the Southern member states reemerged, yet with one crucial difference: Germany appeared to have changed its stance on the matter (Schulz and Henökl, 2020). This resulted in the approval of the unprecedented €750 billion NextGeneration EU recovery plan. With a view to violations of the rule of law in Poland and Hungary, the recovery plan included access clauses tied to the fundamental principles of the EU via the Rule of Law Conditionality Regulation, which acted as preventative mechanisms against further democratic backsliding in both countries, thereby implying that differentiation cannot be applied when it comes to these core values. Legal challenges were unsuccessfully launched by the governments of both countries, yet there were still major concerns over the inaction of European institutions to tackle democratic backsliding in Poland and Hungary. However, the Commission's decision to endorse Poland's recovery and resilience plan in June 2022 was met with strong skepticism, given the government's refusal to loosen control over the judicial system (The Guardian, 2022). Existing patterns of territorial differentiation led to institutional differentiation among national health agencies. Health agencies in Norway and Sweden, for example, activated different strategies first to combat the virus nationally and second in their adoption of advice and services from the ECDC. Contrary to the general observation of tight agency networks among the Nordic countries (Schrama et al., 2020; Stie and Trondal, 2020), the Norwegian and the Swedish health agencies adopted opposite strategies in both regards, for example regarding the implementation of lockdowns and with regards to their referral to the ECDC. Reflecting different domestic institutional designs and past choices, the Norwegian and Swedish governments differed in how they framed and managed the crisis – as a healthcare crisis (in Norway) and a public health crisis (in Sweden; Askim and Bergström, 2021). This observation moreover reflected general patterns of EU differentiation, in which administrative differentiation of the EU contributed to provide institutional architectures for meso-level differentiation (Leruth et al., 2022). One effect was that a non-EU member state (Norway) coordinated Covid-19 responses vis-à-vis the EU more extensively than an EU member state (Sweden). Subsequent internal differentiation occurred once vaccines were deemed safe by peer-reviewed studies: as the EU and the European Medicines Agency were criticized for initially slow-paced decisions to approve vaccines and organizing an effective rollout program, some countries such as Hungary and Slovakia relied on non-European Medicines Agency-approved vaccines such as the Russian Sputnik V (Politico, 2021). Brexit is a second illustrative case providing on how administrative networks in the EU resources for meso-level institutional differentiation. polity-level transformations as with the produced by Brexit, actors their in EU administrative while at the time some variation to institutional and 2021). The scope of meso-level in terms of policy differentiation in the way the post-Brexit EU policy Although the has not yet produced disintegration in one of the most of UK public policy et al., 2022), the institutional and the new agreement (for example, access to and of a strong degree of regulatory and institutional This may even for the to more to the EU in the may be In the process of Brexit has the independence agenda in and the to long-term of the EU may provide further for the and other to for further The implementation of the on has on the agenda in 2021. the of the and thereby a on the of the further in the implementation of the in the of and health, and with Northern on 2021. while Brexit an unprecedented process of differentiated disintegration in the European it also the of the United Kingdom that lead to its own disintegration. In the UK on the with the EU, which further lead to between both and have at the both from the empirical and the of differentiation as a system property of the EU, we that there is a research agenda on differentiation that may be is a general of literature on institutional capacity which to how institutions and systems to and and which may studies of differentiation in the EU et al., 2020; 2021). Studies also provide on how different institutional institutions to to change (for example, and Although institutional are a conceived of as to organizational change and et al., et al., p. institutional theory may be used as a theory of differentiated governance responses. an institutional EU to the of European not with how but how be 2010, p. certain such as institutional resilience and robustness of the EU, be of The role of organizations and organizational however, is in the that institutional has largely the study of long-term and (for example, we as a to differentiation that for March and Olsen, March and famously that long-term of tend to be characterized by to in which tend to be applied to new to a in with an and as in they have not Yet, and of the EU and its institutional system, as with most institutions and is by many the of existing organizational institutional and and limited capacity to and a of previous that at time (for example, sometimes are sometimes characterized by the of that have taken and Olsen, p. or that processes involve and based on of and Olsen, The long-term of differentiated political such as the EU, has been observed to into (Bátora and Fossum, 2020). It thus be that the of a differentiated EU political order is not as a result of processes but subject to the of an institutional not that a political order in an and of the EU, each of which is may be by and may to form a of that therefore on intervention and change through the of organizational an institutional how decision processes and to a of organizational routines that may be and for are past in rules and in the organizational of a government (Olsen, 2017). are thus to and differentiation, some organizational more than – for example, – the organizational structures of the EU, the attention or the architecture of EU is also This that polity-level (that is, the macro-level of the are to the of to actors at the level of institutions (that is, the meso-level of EU institutions and organizational is on the that organizational may how institutions such as the EU and It that organizational are not an of and but in and processes by and and attention certain and certain more than and 2009). are given for it has been that the and effect of on and on studies of the European (for example, and Egeberg and Trondal, Trondal, 2006). Second, to other that in the policy is more subject to change and may thus be an (Egeberg and Trondal, and 2009). organizational therefore from the of EU thus conceive of as a which that of differentiation may be institutionally This implications that may be for in the EU. It may for example be that the institutional of a the of institutional at for institutional of the EU as a differentiated and we argue that the polity-level robustness of the EU is associated with of meso-level institutional differentiation, for instance among EU agencies and administrative networks In other the growth of EU agencies over time has the EU's internal robustness and opportunity to both member and countries in terms of administrative governance. has that the EU has in the of past such as and Brexit, by through established institutions, and Differentiation may as a for the Union to through While the of differentiation has been used and across these cases demonstrate p. quite most and even is not in with The years may the to which differentiation eventually to further the EU in the of future crises continue to a process a differentiated or are we to witness that may the process an The in initially discussions over the creation of new such as political which of a the of political a new dimension to debates over the of differentiation in the time, the Russian in since has a process of in as the Danish in of the defence opt-out in a on 1 June studies on differentiation examine mechanisms that may the emergence of and of differentiation. In we on studies to how differentiated EU for and crisis management et have established that crisis governance in the and within certain policy domains may long-term institutional long-term implications of crisis governance calling for further scholarly across policy and time as well as challenges to the EU's democratic crisis management tend to have that is as observed in the Covid-19 crisis that within one policy – such as public health – may in other policy or across systems 2021). the EU's crisis responses may have long-term and democratic implications and in when the EU to crisis through differentiated institutional and policy the EU's democratic may in the long since crisis responses tend to executive institutions and contribute to the of government decision This central institutions and institutions in processes are from crisis responses and at EU level may therefore a systemic executive and with long-term challenges not met with the support of and et al., 2021).
Martina Halásková, Renata Halásková, Beáta Gavurová, Matúš Kubák
Services are a dynamically developing economic sector in all countries. The paper focuses on public services, evaluated from the perspective of fiscal decentralization. It aims to evaluate the level of fiscal decentralization of expenditures in selected categories of public services in European countries. For this purpose, government expenditures by the local government sector are analyzed in the set of the selected 28 European countries in the period 2010-2018. Cluster analysis has been carried out in order to determine four clusters of countries based on their level of decentralization of expenditures on services. The results show differences in the extent of decentralization between the European countries in the provision of specific public services and reflect the form of financing of local public needs. A low level of fiscal decentralization of expenditures on services (public order and safety; housing and community amenities; recreation, culture, and religion) was observed in the majority of the countries. However, the majority of the countries failed to prove a high level of fiscal decentralization of expenditures on services (social protection, health, education) and a medium level of decentralization of expenditures in terms of general public services and services of economic affairs. These findings demonstrate that the degree of decentralization of public services is determined, to a certain degree, determined by country history and its geographical location, as well as by the different roles of sector-specific public policies. The findings can be helpful for creators of local public policies, strategic plans, and financial concepts.
Popular theories claim that innovation activities should be located in large cities because of more favorable environmental conditions that are absent in smaller cities or peripheral areas. Germany provides a counterexample to such theories. We argue that a major reason behind the geography of innovation in Germany is the country’s pronounced legacy of political fragmentation that created a decentralized settlement structure, shaped the geographic distribution of universities and public research institutions, and brought about a rather uniform and local access to finance. We show how political fragmentation influenced the emergence of historic centers of knowledge production and impacts the positioning of innovation activities today. We conclude that institutional factors should play a more prominent role in theories that aim at explaining the spatial distribution of innovation activities.
The European Union (EU) is under pressure. Crises, undesirable developments, and loss of confidence are mixed up into a diffuse picture of justified criticism, unease, ignorance, and populist rejection. Paradoxically, perhaps the fact that the EU, with all of its advantages, is so naturally present in the everyday lives of citizens today implies a risk for future of European integration. What is taken for granted may suddenly dissolve, not overnight, but in a creeping process that will only be realized in a historical retrospective. The EU has been in a crisis mode for several years now,12 culminating in a ‘poly-crisis’ in 2016. With the global financial crisis and the crisis in the euro area fuelled by it,3 as well as the migration and security crisis in the ‘area of freedom, security and justice’ (the so-called Schengen Area),4 it became evident that two of the integration steps initiated with the Maastricht Treaty in 1992 had led to ‘fair weather areas’ that were not sufficiently prepared for stormy times. In addition, Brexit has, for the first time, confronted the EU with the challenge of dealing with the withdrawal of a member state in organizational (Article 50 of the Treaty of European Union (TEU)) and—behind the scenes—in political terms: The impression of an EU in constant crisis, unable to deliver solutions and stability is supposed to be one of the—many—reasons for the negative result of the British referendum in 2016.5 There can be no doubt that European integration has been a successful project for peace, one which started in 1951 with the creation of a common market for coal and steel (European Coal and Steel Community (ECSC) Treaty). It was in this spirit that the Treaty on the European Economic Community (EEC Treaty) of 1957 emphasized in its preamble the goal of an ‘ever closer union’, in the course of which the integration of the national economies into a single market was to serve to secure peace and motivate Europe’s states and peoples subsequently to pursue political integration too. With the EEC Treaty and the 1985 White Paper on the completion of the internal market, including the limited 1986 reform treaty (the Single European Act), a European single market gradually came into being. Implementation of the single market brought in its wake the Europeanization and partial harmonization of flanking policies, resulting in the development of European environment, health, consumer protection and—in part—social policies.6 This made the EU a European community of values, a process reinforced by the 1992 Maastricht Treaty: drawing lessons from the dictatorships of the twentieth century, it guarantees human rights, democracy, and the rule of law.7 However, what has been achieved threatens to erode: a common and efficient response to the crises is made difficult because there is no consensus, either among the 27 among European on the and future of the EU This is not to the fact that in the euro area on as the Europeanization of financial and with for national In the Schengen no are in the area of a European and including internal security with to the European internal market, the of which is to as a result of and the with it and in the of and a difficult to In an EU that has with is to in that are the time, has made the EU and This not only to and in the but to in Europe’s of the European on the national and that are for and Union in which been a in European are on the the result is that European is not and The goal of the of European achieved by of its is up the in the European citizens the EU and its to this is not the there is a by the EU, on the one and on the In this the EU two national were successful in on the of political in were not of so to European and Implementation and in the are for the fact that the European in the to in and in The and of European is under in as well as in it is that of crises not been for a time, in the political It is in this that the EU has to and efficient it to and The on the of be an in this in all in and the of the However, this process is to be the EU will to and a in to a In this the White Paper on the future of by the on for for the to of the Treaty of the European Union the EU on the of for human freedom, democracy, the rule of and for human are the to the the of the EU a of and by all member states as a for to the EU the of the of national and in the The of the that all a of in of the rule of democracy, and the of and for the of the and by all EU with to the EU the of national and the common of European a of to this European and national are and a in the of which is not only to the European the European to and national In the of European integration this in the process of that European a the of a political by which the European of can be The European rule of is the of European of the rule of the EU is a of It was the European first the of to that the of European is a and a for the common the with which is by the and the of of the European Union as as 1986 it has the European Economic Community as community on the rule of of the in which the the Community are from are in with the the the as a and In the of the to from the of the the Treaty on the to its a state to to its of national the and from its to the Community into the of Community and the of and all of the of the state which the Community This in the of by by the fact of to the Community the of the Community This of in European in the of in a for in an and This as well to European in Europe’s of the European on the national and that are for and Union among the in of the and of the is a for in the EU and the of the EU among its With to the rule of this was by the The European that the of a European the of may be in of a and of the of as by a under the the to that to the of the rule of in there are two to this for the of the national to from the EU as the rule of the of that a to with European it is not to its the can and up the in and EU to the of the single market, the euro the of for citizens the Schengen but not to the and for the by the of the and by the of in to an and European that into the of among as well as the of the EU as a EU is by a of EU but by the of a and of that This by the EU and the of its on the one and on the is to the and in in the of the to the of The as an in the White this It from a of EU as the and of EU is in the of by This is in the a this may be in the of the so-called migration crisis, the EU has been for its to the of the EU and the in the of and and as a of European integration are on the that all a of in of the rule of democracy, and and the has fuelled the the of the and with it in a European Union as a community of the in as well as the in the of and are a The political it difficult for the to a on the and the future of the This is the White Paper on the future of by the European not a and of it for for the development of the up to In are by on the of and the reform of the and and the The is that in the of the on the White Paper was to for on the by be by a and and and a of for reform from the which of the in the European this of This is one of the the White Paper on the future of the EU not a with reform it that are not to be as but are to a process of the and citizens the for is on the process of as the in the crisis of 2016. In the wake of the the and EU the in to the the EU and a for the of the EU the of the Community be in the of of the for there is no in the and Europe’s and not and no is taken of the European of internal there is a risk that on the internal be on a and the the EU to the single market and to This the single market the by in the wake of the 1985 White The on the environment, consumer health, and the protection of be into as and only a development to the of a market in of the Treaty on the of the EU it in the of European for to the and the national This not only of but and the and and only the EU can the of the to up of a for the which from under to the of a with In this the and be to In the EU on a of the political and be in in to on and on the its in be up This is not to the that the EU is in the and is not in of the European in this is to the what the EU and a that the of European This a to the that the EU in the and to deliver on the the integration (the of for a in for a this are the by all of the to and all European The EU is the it to a European and in the euro a European migration and security in the Schengen area and a European and to this by the with the so-called by the European to the two the of state and were to to the for the future in the White Paper and the so that the European in on was supposed to on a reform for the to be by This not in the as the Brexit and its the the on the migration and the of the euro area a reform this the on the of the for a and deliver However, are not an in to an has to be With this the EU has to a the and the This not be but a and on a of the efficient implies that the EU has a to which the EU to the and that citizens it to European and European on and on for the of that the EU on the EU has the for on political to the first and political with an to the In the the and of a single market, including protection and its for all policies, and as well as the stability of the euro by closer political of and with In addition, the of Union citizens in the ‘area of freedom, security and justice’ is to be the of with a migration and security This is to be by the development of a European and efficient with to political the EU, the time, to the of the for this is a European to that a for the political the for the of political to the European in the to the so a for in the of the of of the European and the of of the European be under a single the two of of the European and of the European the of the EU and by the and the European and deliver on in of the of a in that the process and in and This not an to will a of the will to European is on a European be an to the and of the EU European In with the of and the the of the of the two the of citizens European this were in the of the European with the process and the by by and the result be a the of the EU that the to with The EU has to on the be to a of for a and all for the on a by a European with a citizens the European in all the of the is a of political to the Treaty of its be with no Treaty the and harmonization of the European on the one and the European on the will a The political process this challenge will as the will an on the in the of for the European the EU to the of one from to the with the of in the euro the is to the creation of a European Economic and the of the and the of the with the of the European into a European the EU to a limited of in by political it has to deliver on which are In this efficient can be in a of can be by a of the with no Treaty by the so In the area of the internal market and for the of is for this in the and for the to and in be be Treaty as well as are not only a of and but a of on efficient with to the and as well as in the and in This because of a of EU as the and of EU is in the of by the and the EU is in of a of a the EU and its the of as a a the of be on the of a of on the one and the of on the In this the of in serve as a The for the and national for in the of a of in the the a the had with national is the 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be to to the In this one that the serve as a by a to the be only the common and (the single and the European In the of internal the there is a harmonization of in the This the with and among the several and with the and is in with the and the the it the the was to a on what of it had in can that are to the by of a of EU under and the process as of the However, in the to the the British an of difficult it is to for of the of the and the European that that the not to the by the EU under the of with citizens be to to the of and for European to solutions in European be in by a of on common In to the of and a of be from not to the European European to the EU be the for to the In this can all that the EU in the of its on European to from and the EU not be the area in its to a common and of on a With the of the of and in the and the of on a common and single of This common of with to the and be on the of and as well as of the and by the European of in 1992 and of the to the Treaty of was by the in a of and on on the the process of the European by the in the the is a (the to the so and and it is supposed to with and to a with and to with In this the is not the to that the and with national and be and the to on the common and single of on the of and In this a of that the is by the be It may a by the The of this be in the and in the of the as a In with and of the the is to with to the of and European it a it to with the of and a be to of the It the common and single of for the of and be for all in the and in the of In the the so of the to its with the to national the be by the the the of the that be on can be national can the by the with will an to the be on the common and single of on the of and as well as on the a to national from this on it be to a to national of be to national an to by a of to the of national be to a of into of this be the of However, the not be to a a but it be to an for not The be in a which is with the as the and the of the European and the to the to and the of the process the a be in the on the be only in the but in the and the among the with a common and it the of the national to as well as the of the of and a the of (Article to which and of Union not what is to the of the it be the Union is to In this it be the Union has the in its of and of the The and of the be with to the of the and be in and to the are to serve there a that the in the the not be of to that In the of the EU with citizens by European to a In this it not only to European but to solutions in European be in by a of on common In this and with the the be The for a Union for and of criticism, it to on solutions to the to with of and a of the of and This has been into by the on political of the that political in the In the of made by the in the of the from in to in the time, that had been that were not been taken the in to on is a and is it is for In this a that for and of European be The from on the to harmonization by In two be for the of on the of the by which is be including a so-called to challenge which and for an from an rule on and which for a of and the of the which can a of which for from to and the for This is to the European and which to EU and to with so-called which to because the to a This can be in a of and of In political all been and by a up by in and but by the European and of national as well as the of the this the to the of and in and the of European Union the of and in the of the and and for be to the the of its in from to including a as well as from a of the a on that and for In the a of for the EU, in with the of and and and national to to European In the course of the of that the of the EU, the of and are to be in all and all on the of a common for all and national In this a common and a common on be The in the which national on EU and it for a future of this to The that the EU on a to the of the EU in a of which to of the for the that the be to the of EU and to all The of the are to national and the European the the European of the and the European The has taken on the in its of and to the the for the of it into its and This is in the that the European and the will the into the for a common of in the in this was taken by the EU in with a on as a of the which the EU and The so-called of up the of the as well as the of the in of the of a but for a common on the of the are taken into in this an of and by of an are first steps a of the European However, in to this of the of the EU in the a process is which the an and a the of which a EU and on for the of the of the and can by not the European by European to the EU up to the In addition, which in the of European to solutions for European in be by a on the of and on common political to its the EU is in is a of the EU, the of European integration. the of the 27 in so that it is no to a on the the EU, in the to in a state of that threatens its The is to a the of In this of the the to This the of a EU, which can from and integration to that a with of the 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The purpose of the article is to identify the correspondence between the revenue and expenditure parts of local budgets, which are responsible for the significant part of state expenditure financing due to financial decentralization reform. The article provides a comparative analysis of decentralization levels of local budgets in Ukraine and European countries by revenues and expenditures, as well as analyzes the structure of revenues and expenditures of the consolidated budget which include state and local budgets. The article notes that over the past ten years, the gap between revenue and expenditure has narrowed due to decentralization reform, but fiscal balance has not been achieved.The results of the analysis demonstrate the existence of a significant vertical imbalance in the budget system of Ukraine, which consists in the insufficiency of own and fixed financial resources of local authorities to ensure their powers. In terms of income decentralization, Ukraine ranks middle among Eastern European countries, while the level of expenditure decentralization corresponds to the level of Scandinavian countries, where the state plays an active role in income redistribution and has high institutional efficiency and high social standards. The article substantiates that the vertical imbalance exist due to the inefficient structure of local budgets’ revenues, in particular the high share of transfer payments from the state budget to local budgets, as well as the low share of own revenues, namely local taxes, in tax revenues. In order to strengthen the revenue side of local budgets and reduce vertical imbalances it is proposed to increase the tax base of local taxes through development of business and welfare in the regions, to increase the share of deductions from corporate tax and personal income tax to local budgets, to improve the control over local budget revenues and to optimize local expenditures, including social protection and social security expenditures. As the practice of foreign countries with decentralized budget systems shows, the elimination of vertical imbalances leads to a significant increase in the fiscal capacity of the regions. JEL classіfіcatіon: E62, H61, H71, H77 Manuscript received 30.04.2020