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.
After decades of the Communist regime and the Soviet-type council system, a decentralized local government system was introduced in Hungary in 1990. As autonomy at the local level was considered a cornerstone of democracy, local governments gained wide autonomy in terms of their constitutional protection, service-providing competencies and (formal) financial capacities. The extensive decentralization which occurred during the democratic transition resulted in many deficiencies on the sub-national level: the local level was highly fragmented into more than 3,000 local units without any substantive differentiation in tasks between them, while the middle level (county governments) was designed to be weak with basic service-providing tasks, and thus could not become a strategic planner and coordinator of the regions (see Dobos, 2016). In relation to their tasks, the local governments were under-financed and the fragmented local level could not provide services in a cost effective manner. Based on the initial experiences of the local governments’ functioning, scholars and practitioners rapidly came to a consensus about the need for reform of the sub-national institutions (Pálné Kovács, 2016a). However, as the prerequisite of a comprehensive local reform was the political consensus of the national parties (as any major changes required a two thirds majority in the parliament), successive national governments were forced to use financial measures to lessen the fragmentation and to enhance the effectiveness of the system (see Dobos, 2020).
Hungarian Social, Economic and Educational Studies
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. 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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
Jul 3, 2020·Scientific Bulletin of Ivano-Frankivsk National Technical University of Oil and Gas (Series Economics and Management in the Oil and Gas Industry)
Abstract. The article substantiates ways to improve the regional and local development management systemeffectiveness in the context of ensuring endogenously-oriented socio-economic development of Ukrainian regions. According to the set goal, the following methods of economic research are used: analysis and synthesis; abstract-logical-to form the purpose and objectives of the study; dialectical and system analysis to process theoretical and methodological provisions, generalize literature sources, and make conclusions. It is proved that the reform of the required regional development management system is the completion of local government reform and decentralization of power; the formation of a clear system of distribution of powers between bodies of different levels and their resource provision; the improved management of municipal infrastructure; empowerment of local governments in financing the cost of socio-economic development of regions; provision of institutional and resource coordination of the regional strategies and projects development. Attention is drawn to the fact that administrative decentralization, the transfer of powers for independent management of territories to local self-government bodies should be accompanied by budgetary decentralization. Budget decentralization helps to increase the financial potential of the territory, activate innovation and investment activities, stimulate entrepreneurial activity, which will eventually strengthen the economic potential and ensure high-quality economic growth. It is proved that the practical implementation of certain tasks will contribute to improving the regional and local development management system, ensure the upward dynamics of economic development of territories, turn regional differences into new opportunities for the state and its regions socio-economic development, which will create a basis for improving the quality of life, regardless of where people live.
Introduction. Decentralization is characterized by the transfer of a large amount of powers and budgetary resources to local governments. At the same time, the financial and organizational capacity of local self-government bodies and the enterprises created by them is increasing. Budget decentralization creates new opportunities for borrowing through the placement of local government bonds by city councils. A utility loan is one of the instruments of local governments. Municipal credit, as one of the main financial institutions in the local finance system, is important in the financial support of local needs
Recently, the issue of federalism has turned at the centre of the political debate in Italy. It is basically due to the growing demand of rich northern regions who in 2018 laid down the requests to exercise additional functions retaining a more significant part of revenues that the central government collects in their territories. Another reason for attention to this issue is that the long period of public finance consolidation in Italy (2011-15) put the implementation of fiscal federalism to a standstill. There is a growing demand to ascertain the measure to which this implementation has been biased o remained undone. This paper focuses on this second issue investigating to which extent the design of fiscal federalism reform has been applied to the Italian municipalities with a special focus on the equalization system. The paper first proposes a review on the evolution of public finance setting in Italy before the crisis (2008-09), considering the decentralization process in the 1990s and the Constitutional reform of 2001 followed by the enabling law 42 in 2009. Then it looks at the period of fiscal consolidation after the financial crisis in 2011 focusing on the burden of adjustment measures imposed to Italian municipalities. Finally, it tries to summarize the contradictions that the overlapping of two contrasting political agendas – the centralization of public finance under fiscal consolidation and the ongoing fiscal federalism reform – created for the equalization system of municipalities.
The Covid19-related emergency has changed our perspectives on individual and collective priorities. Two aspects in particular will probably stand out for their impact on the way societies will change and adapt to the transformation required (and induced) by this shock. The first is the need to rethink social, economic, political, and territorial planning in a way that allows a prompt, more efficient, decentralized – but also coordinated – response to exogenous shocks, that transcends current (State-centered) administrative and policy boundaries.The second issue is how to finance crucial local infrastructure that allow such local areas to effectively react to exogenous shocks and challenges. The paper explores the possible use ot the EMS for this purpose.
Lisa Grazzini, Patrizia Lattarulo, Marika Macchi, Alessandro Petretto
The aim of this paper is to analyse the requests of asymmetric decentralization that have been recently proposed in Italy by Lombardy, Veneto and Emilia-Romagna in light of the tiny economic literature on asymmetric federalism, and the current institutional set-up. On the basis of article 116, paragraph 3 of the Italian Constitution, we retrace the steps that have been made up to now: from the three original regional requests to the Preliminary Agreements signed in February 2018, and the following Preliminary Agreements signed in February 2019. Attention is focused on three of the subject matters for which a higher degree of decentralization has been requested: health, education, and public finance and regional fiscal coordination. We then analyse the types of funding which could be given to regions to finance their additional supply of goods and services by focusing on three specific criteria: historical costs, national average costs, and regional government expenditure standard needs.
Antonio Nuzzo, Flavia Carle, Eugenio Anessi Pessina
The policies pursued both at the international and national levels have brought to the fore the concept of governance decentralization of health-care systems. In Italy, in particular, with the approval of legislative decree n. 56/2000 on fiscal federalism and the amendments to Title V of the Constitution (Const. Law n. 3/2001), the Regions have obtained wider political, administrative, organizational and management competencies also in health care. At the international level, several studies have examined the issue of equity in a decentralized health-care system. In the Italian context, this also involves the provision of essential levels of health care (LEAs) across Regions. Equity is a constitutional principle, pursued by the central level and monitored through the set of indicators of the “LEA Grid” (Griglia LEA). Starting from the “LEA Grid” indicators, through a multidimensional analysis by principal components, the study analyzes the evolution of inter-regional equity in the provision of health care (prevention, hospital care, outpatient care) between 2001 and 2012, when the process of health-care decentralization became more established. In line with the international literature, this analysis shows a significant inter-regional heterogeneity. In particular, it highlights: 1) an interregional differentiation with respect to the principal components defined “vaccination coverage”, “hospital care performance” and “outpatient care for the disabled”; 2) a persistent differentiation in “hospital care” between central-northern and southern regions; 3) a negative trend for the autonomous regions and provinces both in the provision of “hospital care” and “vaccination coverage”. The results of the study, innovative for equity dimensions explored and data available, justify the central government's intervention as guarantor of territorial equity with respect to the provision of health care.
Global Health Care Issues
Regional Development and Policy
Health Systems, Economic Evaluations, Quality of Life
The process of reform and fiscal decentralization in the Republic of North Macedonia is already in the second decade of implementation, the legal deadline of which was 2007. However, local government units are still lagging behind in the realization of many of their functions and legal competencies, mainly as a result of lack of financial means, lack of knowledge or lack of capacities to access on alternative sources of funding. An important instrument of financing, especially for financing local and regional economic development are municipal bonds, which are considered the most used financial instruments for financing local and regional capital projects in almost all developed countries of the World, but still in Republic of North Macedonia, no municipality has used this funding source. It is reasonable and necessary that this practice to be developed also in North Macedonia that would result in the realization of strategic municipal projects and at the same time will have an impact on the development of the capital market.Therefore, the purpose of this paper is to analyze the factors, causes and barriers of non-application of municipal bonds in North Macedonia as a financing instrument by the municipalities. Also in this paper are analyzed and evaluated the opportunities and constraints, benefits and risks, criteria and budget constraints of municipal bonds as an additional or alternative source of financial resources for financing local and regional economic development.
The local government administrations in Romania have become more visible for taxpayers lately, once the decentralization process has developed. The interest in knowing how local government resources are used has increased, especially after diversifying and increasing funding sources. The present paper presents a detailed analysis of the public revenues and expenditures for the territorial administrative units in Romania. A number of local public finance problems are highlighted: the decrease of public investment, the budget imbalances, the increase of transfers from the state budget, etc., which have been worsened by some legislative changes in recent years.
By 2022, a change in the form of government from unitary to federal will likely happen in the Philippines, a nation of 104 million. Although decentralization is not new to the country owing to the passage of the Local Government Code of 1991, the transition will have major policy implications on the assignment of expenditure and revenue (taxation) responsibilities for government functions. This study focuses on the technical and vocational education and training (TVET), an important component of the Philippine Government’s national strategy for economic development and poverty alleviation. TVET governance in the Philippines is placed under the authority of the Technical Education and Skills Development Authority (TESDA), an agency attached to the national government which operates a network of over a hundred TVET training schools and institutes. With the impending shift to a federal system, TESDA needs to formulate a decentralization strategy, determining which sub-functions of TVET governance should be retained at the national level, devolved/transferred to subnational governments, and shared between the two levels government. This paper maintains that in addressing these policy issues, the Philippine Government should be guided by the principles of fiscal federalism and informed by existing TVET vi decentralization models in federal countries worldwide. This paper utilizes comparative institutional analysis, an analytical framework that examines existing institutional arrangements in some jurisdictions to inform policy formulation elsewhere. TVET governance in eight federal countries are analyzed by answering this question: Which sub-functions are assigned to what level of government? The sub-functions of the TVET system are: a) policy formulation and planning, b) standard-setting and regulatory, c) financing/contracting and d) provision of TVET services to clients. Based on the findings of the study, policy makers in the Philippines are enjoined to consider the following policy recommendations on decentralizing TVET under the proposed federal system: a. TVET policy formulation, planning, standard-setting and regulatory functions should be assigned solely to the national government so that TVET governance is harmonized across jurisdictions, and to be consistent with the national government’s equity goals; b. Financing/contracting for TVET can initially be assigned as a “shared function” between the national and subnational governments; however, in the long term, the subnational governments should develop their local revenue generation capacity and eventually be responsible for TVET financing/ contracting in their jurisdictions. Policy makers should also explore alternative models for TVET financing such as inclusion of TVET in the existing Special Education Fund (SEF) and establishing a TVET Training Fund; vii c. Provision of TVET training services can initially be a “shared function” between the two levels of government; however, as experiences of federal countries clearly show, the primary responsibility of providing TVET services to clients should rest with the subnational governments.
The objective of this paper is to examine whether the level of fiscal decentralization of a country is a relevant variable to explain public investment in innovation (measured as the share of research and development (R&D) spending in total government budget) and the intensity of basic research within the public R&D bundle. To assess the effects of decentralization, we present a theoretical model where a 'benevolent government' invests in R&D aiming at maximizing net income available in the country (central government) or in the respective region (subnational government), states compete to attract capital investment, and R&D results are subject to interregional knowledge spillovers. According to the model, decentralization leads to a lower share of basic research in government innovation spending. The impact on total R&D is ambiguous, although it tends to be negative. The conclusions of the model are tested through an empirical analysis using country aggregate data. Confirming the predictions of the model, we find evidence that expenditure decentralization leads to lower intensity of basic research within public R&D, and that both types of decentralization negatively affect the size of innovation spending. Our findings suggest that deepening fiscal decentralization should be considered along with measures to compensate for innovation spending decrease, and that the central government should play a greater role in financing or carrying out basic research.
The subject of the study is the full range of methods for ensuring financial independence for local budgets in a decentralized environment. The purpose of the study is to work out a strategy based on the systematic approach to ensure financial independence for local budgets in a decentralized environment. The study methodology includes methods of analysis and synthesis, statistical methods, such as graphic and tabular methods, and methods for comparing and generalization. The results of the study. A comparative analysis of the impact of decentralization on the local budgeting has been carried out using the example of the 2014-2016 budget of Irpin. Some recommendation has been drafted to improve the system of local budgeting including some ways of greater development of the empowerment and autonomy of local budgets. Non-typical for Ukrainian economy gender method of budget analysis has been considered resulting in additional analysis of local budgets and eliciting a fact of the existence of some problematic budget lines regarding a gender-based approach in budgeting and working out a number of recommendation to eliminate them. The sphere of application of results. Local budgeting in a decentralized environment. Local budgets. Conclusion. Budget decentralization being taken into consideration opens up the prospect of the development of local self-government in order to deal effectively with the administration of local affairs, and enhance the role of citizens in the sphere of decision-making and practical implementation of socio-economic programs for the region. Financial basis of local budgets must assist local self-government in an effective implementation of the development strategy for the region. An analysis of the revenue and expenditure sides of the budget of Irpin in 2014-2016 in the context of the budgeting and income distribution of local budget shows a considerable increase in the level of fiscal decentralization of the income section of the budget, direct dependence of local authorities on the central Government and partly on transfer payments and emphasizes the need to strengthen the self-sustainability of local budgets and cover the requirement of financially literate managers. It has been found that a balanced division of powers between the central Government and the regions and decentralization of public finances are needed to reform local budgets (including the budget of Irpin). The sources of tax revenues are considered to be distributed between central and local authorities according to proper discharge of their duties that should be a subject for legislation on local self-government. Besides it is essentially necessary to give the local authorities the right to establish local taxes and duties and their rates. The analysis of a gender-based budgeting clearly indicates the importance of objective approach to budgetary expenditure. An integrated analysis of all the spheres of financing needs is important for rational and efficient allocation of financial resources at the state and local levels.
Dana Országhová, Radomíra Hornyák Gregáňová, Viera Papcunová
Changes in the socio-economic conditions of countries initiate modifications in the management of its economic and social processes, which are also followed by conversions in the public administration. At the same time, they are also looking for the concepts of rational organization and effective management of the public administration. The public administration of the Slovak Republic is created by local self-government and regional selfgovernment. Municipalities represent the local self-government bodies. The effective conditions of the municipalities are creating the effective setting of its financing. Until 2004 the financing of municipalities was determined annually by the state budget act and for the municipalities distributed from the state budget a share of the tax of personal income, which consisted of three taxes: tax of personal income, tax of the corporation income and road tax. In 2005 the fiscal decentralization took place in Slovakia as a part of the consolidation of public finances, resulting in a new way of financing municipalities. The basis of the new financing system of municipalities was to determine the tax of personal income as a single share tax, in particular, because the dynamics of the income of this tax was expected to grow even in the medium term. The objective of the paper is to evaluate changes and trends in the financial management of municipalities based on selected fiscal indicators within the period 1993 -2015.
The subject of research in this paper is the institute of public loan as an instrument for financing public needs of municipalities - cities and local selfgovernments. The paper will highlight the causes of the growing importance of the public debt instrument at the local level, as a phenomenon that follows the tendency of global affirmation of the idea of fiscal decentralization. It will also point out the elements of the legitimacy of rational use of public loans, as well as the nature, scope and consequences of different types of restrictions on local borrowing at global and domestic level.
In this research, the index of all Croatian cities’ tax autonomy (128) in the 2002-2016 period was calculated. The aim of this research is to show how many Croatian cities control their tax revenues. It is also the goal to determine whether cities have the ability to independently finance local public services to citizens and entrepreneurs. The OECD methodology in the classification of tax revenues was used. The results of the analysis showed that Croatian cities had a relatively low level of tax autonomy, except in the period from 2010 to 2014, when the index of tax autonomy was above 54, while in 2016 it amounted to 41.36. The research results showed that only a small number of cities-without the aid of state government grants-can finance their existing level of public services for residents and entrepreneurs and manage their development. This is an important conclusion in considering the future role of cities in taking over new public functions and increasing the decentralization of public administration and territorial organization of the state.
Stanese Ioana Tatiana, CĂRĂUȘ Mădălina, Ungureanu Mihai Aristotel
The article approaches important aspects regarding the regional development process in Romania in direct correlation with the European Union views and directives in this field. This paper argues that regionalization implies a new reorganization of Romania in view of a balanced development and to increase the absorption of European Funds, which \nconsequently engages regional development, the development of local communities and the decentralization of public administration. Furthermore, in this paper we present the \nconsistency issue concerning the request for territorial- \nadministrative development in Romania, as it originates from the strategic documents, namely the "National Plan of \nGovernance 2017-2020" and the "Action Plan for the Implementation of the Strategy for Strengthening the Public Administration 2014-2020", and we highlight a number of \nshortcomings of this process.
<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.
Local government and decentralization are the main challenges of the Albanian government reforms. Decentralization and urbanization are a greater pressure on local governments to finance public services and facilitate economic development. During the years, the local government responsibilities have been increased, while fiscal decentralization and transfer of funds have not progressed with the same speed, resulting in significant lack of funding. Local government budgets are generally small and cannot afford financing for major projects and infrastructure improvements. Funds from the state budget for infrastructure investments (mainly competitive grants/Regional Development Fund) have been increasing in recent years, their impact is still small compared to the needs. The main forms of financing of local government are: central government transfers and its own revenues. Vertical and horizontal transfer between different levels of governments (CG and LG) that takes place during the annual budget cycle is not based on clearly defined criteria and in a transparent way, or does not match the needs for expenditures at the local level. This creates a considerable level of instability (illogical movement) of revenues and expenses during the budget cycle units, as a result created a high degree of unpredictability of revenue and expenditure of local units.Currently, local government units funded from central government about 60 percent of local budget, which shows the low level of local autonomy. These and the other problems have made necessary by the territorial reorganization and together with the performance of a deep fiscal decentralization.This article through studding the local decentralization in the last years aims also to make a comparison to previous years and since 20016 is the first year of the complete implementation of the new Administrative and Territorial Reform and the transfer of certain new functions to the local government as well. Keywords : Local government, local finances, transfers conditional, unconditional transfers, their income, responsibility, decentralization, Administrative and Territorial Reform, funding sources etc.