Essossinam Pali, Coffi Cyprien Aholou, François Paul Yatta
After several hesitant attempts, Togo has made renewed progress in implementing sustainable decentralization. Municipal and regional elections held in 2019 and 2024 marked a significant institutional step forward. However, this implementation phase remains marked by both achievements and structural challenges. This article explores how local elected officials perceive the decentralization policy and its financing in their municipalities. It formulates the general hypothesis that decentralization fosters the implementation of local public policies when supported by appropriate institutional mechanisms. Based on a quantitative survey conducted in early 2024 among 487 local actors including 477 municipal councilors and 10 prefects the results highlight a range of perceptions. While some elected officials acknowledge improvements in service delivery and institutional support (through tools such as FACT and ANFCT), others stress the persistence of constraints related to financial autonomy, administrative capacities, and citizen participation. The findings suggest that decentralization in Togo is progressing, albeit unevenly, and requires further efforts to consolidate its institutional and operational foundations.
In Qing Dynasty China, the inter-government fiscal arrangement was characterized by a âdual-track fiscal systemâ in which a formal system with a central budget of revenues and spending coexisted with a decentralized and fragmented informal local fiscal system financed by miscellaneous extra-legal taxes. Why did the dual-track fiscal system endure despite its obvious flaws? Why was the Qing state unable to establish a stable and rationalized fiscal federalism? This chapter investigates the causes and consequences of the dual-track fiscal system. Through historical institutional analysis and several empirical studies, we propose a novel explanation based on the opportunistic behavior and credible commitment by the central government. Due to the central governmentâs inability to credibly commit to not encroaching on the formal fiscal powers of lower-level governments, the decentralized, off-budget, and informal local finances represent an âinstitutional equilibriumâ.
This study analyzes the two-tier local government models in France, Japan, Germany, and the United States to draw lessons for reforming the organization of state apparatus in Vietnam. Based on the theoretical foundations of local government organization, it clarifies the principles of decentralization, autonomy, accountability, and effective public governance. International experience highlights the importance oftransparent institutions, financial autonomy, competent personnel, and the application of technology in governance. In Vietnam, the two-tier model has been implemented since July 1, 2025, under Law No.72/2025/QH15, replacing the traditional three-tier structure. The article examines the challenges during the transition and proposes solutions to improve the legal framework, ensure substantive decentralization, enhance implementation capacity, reform public finance, strengthen oversight, and promote accountability - thereby contributing to building an effective, modern, and democratic local government.
Given the Chinese governmentâs aim of high-quality development and under the double constraints of incremental land and limited local revenue, Chinese local governments' path-dependence on land finance is confronting significant challenges. Guangdong Province has implemented a series of urban renewal programs called Three Olds Redevelopment (TOR) projects, providing a potential alternative for financially sustainable development. Using panel data covering 21 prefecture-level cities in Guangdong during 2009â2018, this study constructed a quantitative analysis of the fiscal revenue effect of TOR. The results illustrate that TOR reduces fiscal revenues, including tax revenue and land-transfer fees, in the short term but increases them in the long term. Higher fiscal decentralization tends to amplify the fiscal effects, while market power and dependence on land finance may weaken the impact. As for the mechanism, TOR projects can increase long-term fiscal revenue because of social capital involvement and functional upgrading effects. We suggest urban renewal and policy innovation to transcend land finance path-dependence and realize sustainable local finance.
Whether fiscal transfers can simultaneously achieve the dual goals of equity and growth has been a key topic of public finance research. This paper examines China's fiscal decentralization system and its intergovernmental transfer practices, proposing two conditions under which equity-oriented transfer systems may promote economic growth: The effectively motivate local officials' enthusiasm for economic development and the receiving regions' high marginal capital returns. We employ unique fiscal data from China's county-level economies for the period 2016â2021 to conduct regression analyses. The results show that provinces with more equitable distribution of transfer payments exhibit better economic growth at the county level. However, at the provincial level, there is a non-significant but noteworthy economic loss. This is attributed to the reverse incentives created by the equalization of fiscal transfers, which encourage growth in smaller counties but hinder growth in larger ones. The main mechanisms driving these reverse incentives include insufficient growth potential, distorted fiscal spending preferences, and an over-reliance on transfer payments. Our study demonstrates that, even within China's unique fiscal system and local development incentives, the allocation of fiscal transfer funds still faces a trade-off between equity and growth. This deepens our understanding of the effectiveness of fiscal transfer systems and the logic of local fiscal operations under a multi-level fiscal governance framework.
Samuel Wesonga Usolo, Annette Okoth, David Angwenyi
Youth unemployment remains a major concern, particularly in African countries with the youngest population globally. In Kenya, youth unemployment rate has shown fluctuations despite several government efforts such as the Youth Enterprise Development Fund (YEDF), Kenya Youth Empowerment Project (KYEP) and the Youth Employment Scheme Abroad (YESA). The impact of devolution on youth unemployment in Kenya has had little investigation on, which is the reason for this study. The study aims to assess the effect of devolution on youth unemployment rates in Kenya, utilizing Autoregressive Integrated Moving Average-Intervention model. This research was informed by the Keynesian and Decentralization theories of employment, which collectively illustrate how government efforts, like introduction of devolution, are anticipated to influence labor market results. This study used the yearly secondary data on youth unemployment rates from the World Bank covering the period from 1991 to 2022. Computational analysis was done using Python programming. An ARIMA (0, 0, 0)(0,0,1)[4] was selected as the most suitable model for the youth unemployment rates prior to devolution (noise model) due to its lowest Akaike Information Criterion (AIC) value of 234.746 in comparison to other identified candidate models. By including devolution as an intervention in the selected noise model, its statistical significance was established at the 0.05 level of significance. Comparative analysis findings revealed that the average youth unemployment rate increased from 6.67% prior to devolution to 10.19% during the devolution period. The projected counterfactual rate during devolution was approximated to be 8.583%, which confirmed the observed increase as statistically significant. In conclusion, the effect of devolution was found to be statistically significant, implying that youth unemployment rates increased during devolution, as confirmed by the fitted ARIMA - Intervention model. Based on the upward trend in youth unemployment rates, the study recommended that policymakers prioritize other context specific and targeted interventions to address structural barriers in the youth labour markets. These should include expanding access to skills training and vocational education, fostering youth entrepreneurship through financing and mentorship programs, and aligning education curriculum with labour market needs.
Adolf Z. D. Siahay, Entis Sutisna, Jana Siti Nor Khasanah, Agus Dwianto
This research focuses on the influence of legal, managerial, political, and social variables (in this case, legal clarity, management accounting practices, elite capture, and community involvement) on governance performance in the context of special fiscal autonomy in Papua. We also investigate how Digital Fiscal Monitoring Systems (DFMS) attenuate these relationships. Quantitative survey; SPSS for regression and moderation analysis. Legal clarity and accounting transparency, and popular planning, positively affect governance, whereas elite capture has a negative influence on them. DFMS strengthens the positive impact of good governance and reduces the adverse effects of elite control. The interaction model of both shows that governance performance maximally increases if all institutional elements are synergized under digital monitoring. This paper offers an integrated governance framework of asymmetrical decentralization and positions DFMS as a moderator and an underdeveloped point of view in Indonesiaâs subnational governance context. For Papua, the lessons are that the political process of passing laws must be accompanied by participatory planning and digital monitoring to ensure that autonomy meets its promise. This study has global implications for other poor or post-conflict areas that are contemplating such differentiated patterns of decentralization supported by digital public finance instruments.
This chapter explores the period between 2001 and 2021 when Afghanistan was the center of attention by major international donorsâespecially, the United States of America. It particularly focuses on the post-2001 reforms of Afghanistanâs public finance management system. In addition to explaining how and why Afghanistan ended up with the same old, centralized model of governance, this chapter unpacks how the centralized public finance management system remained unchanged despite numerous efforts to decentralize it. Likewise, this chapter provides a general description of the most recent planning and budgeting reforms that became the basis of provincial planning and budgeting since 2015.
Local Government Finance and Decentralization
Politics and Conflicts in Afghanistan, Pakistan, and Middle East
Type of the article: Research ArticleAbstractThis paper investigates the determinants of local public investment in Morocco, a country undergoing decentralization and facing persistent regional disparities. The study aims to identify the key factors driving capital expenditure across Moroccoâs 12 regions and their local governments, including regional, provincial, and municipal councils, from 2017 to 2024. A dynamic panel of 96 observations is constructed, and a generalized method of moments (GMM) estimator is applied to address endogeneity, control for regional fixed effects, and account for the temporal persistence of investment. The choice of GMM is supported by prior descriptive analysis and the absence of spatial autocorrelation, confirmed by Moranâs I test. The results show that financial resources play a central role in shaping regional investment levels. Specifically, both own-source revenues and central government transfers have a positive and statistically significant effect on investment, with elasticities of 0.43 and 1.35, respectively. Public debt also contributes positively (0.21%), suggesting its potential as a complementary financing tool. In contrast, personnel expenditure exerts a crowding-out effect (â0.48%), reducing the fiscal space available for investment. Other operating expenditures and regional population show no significant impact. The model is robust (R² = 0.757) and satisfies the Hansen test (p = 0.095). Overall, the findings highlight the decisive role of financial autonomy and the effectiveness of intergovernmental transfers in enhancing the investment capacity of local governments. The results also call for better management of operating expenses to avoid limiting capital investment potential.
This study explores the financing of local governance in Nepal, focusing on Neelakantha Municipality to evaluate fiscal federalism under the countryâs three-tier governance system. Analyzing revenue and expenditure data from FY 2077/78 to 2079/80, the research reveals a significant dependence on intergovernmental transfers, which comprised over 55% of total revenue, while internal revenue generation declined to as low as 2.8%. Despite consistent budget surpluses, the municipality struggled with capital expenditure execution, achieving as little as 61% in some years. Using indicators such as the Fiscal Autonomy Ratio (FAR), Local Fiscal Dependency Ratio (LFDR), and Financial Autonomy Index (FAI), the study identifies weak fiscal autonomy and increasing external dependence, with FAR values ranging from 4.0% to 38.5%, FAI declining to 18.0% by FY 2079/80, and LFDR trending upward. These trends reflect administrative inefficiencies in revenue collection and budget implementation. Although Nepalâs legal provisions for fiscal federalism are robust, the study concludes that implementation gapsâsuch as vertical and horizontal fiscal imbalances, overlapping tax structures, and limited local capacityâcontinue to undermine effectiveness. It recommends enhancing local revenue administration, improving expenditure management, and strengthening performance monitoring. The case of Neelakantha Municipality underscores the need for governance reforms to support institutional design and realize the goals of meaningful fiscal decentralization.
The article examines the historical stages of the formation and development of financial control over local finances in Ukraine. The origins of financial control since the times of Kyivan Rus are investigated, the role of âRuska Pravdaâ in the formation of the first legal principles of financial control is characterized. Particular attention is paid to the functioning of treasury chambers, control departments and state control bodies during the period of the Russian Empire, starting from the 18th century. The transformations of the financial control system in the conditions of imperial, Soviet and independent Ukrainian statehood are analyzed. The key regulatory legal acts that regulated financial control at different stages of history are identified â from the âTemporary Regulation on Control Institutionsâ (1866) to the Budget Code of Ukraine. It is proposed to define the following historical stages of the formation of financial control over local finances in Ukraine: 1) the Old Russian stage (XâXIII centuries) â primary forms of financial control, when the financial system was based on in-kind taxes and fees, and financial control was carried out through the princely administration, in particular through the âprincely treasuryâ; 2) the pre-reform period (XIII century â until 1864) â financial control at the local level was weak, carried out through the governorâs office, the main attention was focused on collecting taxes and ensuring revenues to the empireâs budget; 3) the period of the zemstvo reform (1864â1917) â the creation of zemstvos â local self-government bodies with the right to draw up local budgets, the emergence of the first institutions of financial control at the local level; 4) the Soviet centralized stage (1918â1990) â complete centralization of finances, local budgets were integrated into the national budgets; 5) the beginning of independent financial control (1991â2000) â the formation of the legal foundations of local self-government, the emergence of a regulatory framework for local financial control, the formation of financial powers of local authorities; 6) codification and systematization of regulatory and legal acts regulating financial control (2001â2010); 7) the stage of decentralization and digital transformation (2010 â to date) â the activation of local self-government, digitalization of budget processes, the introduction of public control tools.
Alma Idah, R. Biroum Bernardianto, Suffianor Suffianor
This study offers a thorough summary of the state of research in the area of local government finance by conducting a systematic literature review. Drawing on 25 years of pertinent publications in the subject of public budgeting and finance, the study addresses a variety of topics, such as capital budgeting, budgeting and budget reform, intergovernmental finance, financial management, and alternative service delivery. Scopus was used to gather the data, and 580 articles were deemed suitable for additional examination. The data were analyzed using Bibliometric approach. The analysis highlights China, the United States, and the United Kingdom as dominant contributors, with a strong focus on topics such as fiscal decentralization, local government finance, and governance efficiency. The author collaboration network reveals fragmented clusters, with limited interconnections among researchers, emphasizing the need for broader global and interdisciplinary collaborations. Additionally, the findings underscore the growing importance of emerging themes such as sustainability, digital governance, and AI-driven fiscal management, which remain underexplored. Geographical imbalances in research output further highlight the need for greater representation from underrepresented regions, including Africa, South America, and parts of Asia. Policymakers and practitioners who want to keep up with the most recent advancements and industry best practices in local government finance will also benefit from it.
Equitable education systems contribute to fostering thriving societies. However, decentralization reforms in school finance pose challenges to equity and social justice. Using longitudinal multilevel models, we examined the trends in equity of local education funding distribution in 250 Israeli local authorities from 2014 to 2020. Our findings revealed a consistently inequitable allocation: high-SES and majority-populated areas allocated double the resources compared with low-SES and minority-populated areas, with funding disparities increasing over time. These findings suggest the need for regulations governing local funding, particularly in diverse societies, to promote equity in education finance.
The implementation of the decentralization reform in Ukraine and its impact on the development of regions and territorial communities, the formation and implementation of local budgets impact the interests of state and local self-government bodies, business structures, and residents of newly formed communities. Problem Statement. The impact of the decentralization reform introduced in Ukraine on the formation of budget indicators and the distribution of funds between the state and local budgets. Purpose. The study of changes caused by the decentralization reform in the formation of the revenue part of local budgets, the distribution of revenues between levels of the budget system, the state of budgetary decentralization of funds, the significance of intergovernmental transfers and local taxes and fees in filling local budgets and their impact on the level of their financial autonomy. Methods. General scientific methods are used, namely: description, comparison, monographic, theoretical generalization. Results. The transformations of the budget and tax legislation of Ukraine carried out within the framework of the decentralization reform are characterized, and their impact on the formation of budget revenues is determined. Generalizing indicators were studied, which made it possible to assess the state of budget decentralization in Ukraine. The evaluation of changes in the role of interbudgetary transfers and local taxes and fees in filling local budgets, and their impact on indicators of financial autonomy of the latter, is given. Conclusions. The processes of unification of territorial communities as the first step within the framework of the decentralization reform in Ukraine affected the formation and volumes of the revenue part of local budgets, influenced their composition and volumes of expenditure. Budget and tax transformations had an ambiguous impact on local budget revenues, causing additional revenues on the one hand, and losses for various groups of budgets on the other hand. The indicators of budget decentralization calculated in the article unequivocally showed a reduction in the dynamics of the share of local budgets in the consolidated budget of Ukraine both at the stage of the initial allocation of funds and as a result of their final redistribution. At the same time, a significant change in the proportions of the distribution of resources between some groups of local budgets was recorded in the direction of an increase in the share of funds concentrated in the budgets of territorial communities and a decrease in the share directed to regional and district budgets. It has been demonstrated that changes in the absolute and relative indicators of interbudgetary transfers in local budget revenues are due mainly to the adjustment of approaches to the financing of some expenses, rather than to the strengthening of the income autonomy of local budgets. In the conditions of the growing role of local taxes and fees in the formation of local budget revenues, the risks of possible intervention of the central government in the processes of administration of the specified payments, adjustment of the rules for their calculation and payment remain relevant for local authorities. This may negatively affect the financial autonomy of budgets, endanger the proper and timely performance of the tasks assigned to it by the local self-government.
The relevance of the article is due to the fact that there is currently an increasing need for an independent financial ecosystem that provides capital owners with full control over their money due to the fact that it is the development of a financial system based on modern technologies in power and financial relations. The subject of the research is the use of financial services based on the use of blockchain and a platform approach. The purpose of the work is to identify the problems, risks, advantages and disadvantages of decentralized finance (DeFi). The analysis of the current state of decentralized finance is carried out and the mechanisms of their functioning are investigated. It has been established that the DeFi ecosystem, which uses a multi-level structure and freely combines blocks and protocols, is implemented by decentralized autonomous organizations that ensure the interaction of participants and decision-making mechanisms. Potential applications of the DeFi ecosystem have been identified, covering the provision and receipt of loans, banking services, and profit optimization. The key problems of decentralized financing have been identified, including a high risk of user error; low productivity; the possibility of third-party interference; difficulties in using tokens with different capitalization levels; imperfect functioning of programs; insufficient cybersecurity; significant volatility. The advantages and development trends of centralized financing are highlighted: fast access and openness; autonomy; relatively high profitability; savings on resources and time. It is concluded that decentralized financing has both advantages and disadvantages.
Charles Nicholas, Charles Dwumfour Osei, David Kwao-Sarbah
The success of decentralization efforts in developing countries, such as Ghana, is closely tied to the capacity for robust infrastructure delivery at the local level, where local governments are mandated to drive development but often operate on shoestring budgets. This study critically examines the performance of Internally Generated Funds (IGF) collection in the Ahafo Ano-South West District in Ghana, with a specific focus on revenue trends from 2016 to 2022. Using time series data, the study applies the Corrected Revenue Collection Index (CRCI) to assess how well various revenue streams performed. The findings reveal a striking pattern where property rates emerged as the most consistent and high-performing source of IGF, while revenues from land royalties and administrative fees lagged significantly. Rental income from lands and buildings, and licenses, showed moderate but promising results. These disparities highlight the untapped potential within local revenue systems and point to key areas for reform and strategic investment. By offering new empirical insights, this study contributes meaningfully to the broader discourse on local government financing and sustainable development. It underscores the urgent need for improved revenue mobilization strategies and greater fiscal accountability to empower district assemblies in Ghana and similar contexts to deliver on their developmental mandates. Strengthening IGF collection is not just a financial necessity but a pathway to stronger and more self-reliant local governance. Keywords: Revenue mobilization, Internally generated fund, District Assembly, Local Government, Decentralization, Ghana.
The constitutionalising of local self-government through the 73rd and 74th Constitutional Amendments marked a significant moment in Indiaâs democratic and federal evolution. These reforms sought to deepen democracy by devolving powers, responsibilities and resources to local governments. More than three decades later, decentralization in India has produced institutions that are electorally vibrant but administratively constrained. This paper examines the paradox of extensive formal devolution coexisting with persistent state control. Using the analytical framework of finance, functions, and functionaries (the â3Fsâ), it argues that decentralization in India has unfolded as a managed and politically conditioned process rather than a comprehensive transfer of authority. While fiscal transfers and functional assignments have expanded unevenly, control over administrative personnel has remained firmly centralized. The retention of authority over functionaries emerges as the central mechanism through which state governments preserve power over local governance. The paper contributes to decentralization scholarship by shifting attention from constitutional design to political economy, highlighting personnel control as the key constraint on substantive local self-government in India.
Somalia's urban growth, particularly in the Benadir region, has intensified over the past decades with driving forces such as population inflow, economic opportunities, and post-conflict rehabilitation.This study analyzes challenges encountered by Somalia's Benadir local government administration, such as urban growth and challenges they experience owing to reasons such as weak infrastructure, lack of finance, and inefficient systems of governance.This rapid urbanisation, however, presents significant challenges to local government management, such as inadequate infrastructure, poor urban planning, limitations on resources, and governance challenges.This study investigates the impact of urban development on local government functioning in the Benadir region, with an emphasis on how municipal governments manage urban services such as housing, waste management, public health, and security under the conditions of limited financial and human resources.The research also emphasizes the demand for better infrastructure, more effective institutional frameworks, and better policies of local governance to manage urban growth effectively.By facilitating sustainable urban development, policy concepts consist of decentralizing resources, developing capability, and establishing strategic partnerships with foreign entities.The research applied qualitative methods to approach, analysing secondary data acquired from kinds of literature of local government officials and leaders and data collected from policy documents and urban development reports.The findings show a gap between rates of urban growth and administrative capacity, leading to such governance challenges as informal settlements, poor public services, and undermined institutional arrangements.Strategic urban planning, enhanced mobilisation of resources, and building capacity are recommended by the report to strengthen local government administration and promote sustainable urban development in the Benadir region.These results contribute to the broader debate on urban governance in post-conflict environments, offering policy implications for Somalia and other developing nations experiencing rapid urbanisation.
Since the fiscal decentralization process began in 1980, territorial inequality among the poorest and richest regions of the Mexican Republic has grown. In this work, states are divided into two groups: Those that contribute more to the federal budget than they receive and are considered fiscally surplus, and those that contribute less and are in deficit. It is shown that the fiscal deficit of the poorest states has been able to be financed through oil revenues. However, this situation is not sustainable and to maintain the current levels of transfers to the most deficient regions, it will be necessary to squeeze more from the taxpayers of the richest states. Without a new fiscal pact between the states, demands for greater autonomy in the richest regions will increase, as has recently happened in other countries.
Essossinam Pali, Coffi Cyprien Aholou, François Paul Yatta
Since 2019, Togo has been strengthening financial decentralization through municipalization and the election of municipal councilors. Municipal financial autonomy is a key driver of local governance, allowing municipalities to mobilize their own resources, manage tax and non-tax revenues, and implement development projects. However, despite a legal framework governing local taxation, Togolese municipalities continue to face chronic financial constraints that limit their ability to finance public services and infrastructure. This study examines the mechanisms of financial decentralization in Togo and their contribution to municipal budgets. Using a quantitative approach that combines documentary analysis and interviews with 188 experts and practitioners in local finance, the study identifies the following four primary financing mechanisms: local, national, community-based and international. Among these, own revenues, including tax revenues, non-tax revenues, and revenues from the provision of services, together with government transfers through the Local Authorities Support Fund (FACT) are the main sources of local government finance. However, the results show that several legally defined fiscal instruments remain underutilized or outdated in many municipalities, significantly limiting their effectiveness in mobilizing resources. These results highlight the need to optimize fiscal decentralization strategies in order to strengthen the financial autonomy of municipalities and support sustainable territorial development.
Fran Brahimi, Mariel Frroku, SkĂŤnder Uku, Emiljan Mustaqe
A significant part of the literature on fiscal decentralization confirms that the greater the ability of decentralized governments to adapt policies to local preferences and to be innovative in providing public services, the greater the potential for investments and economic growth. This paper examines the dynamic effects and relationship between own source revenues, unconditional transfers, and local public investments. Over the past decades, fiscal and financial decentralization in Albania has made steady progress. However, the increasing responsibilities of local governments have intensified the need to raise the share of local revenues and expenditures relative to GDP and increase revenue from unconditional transfers. Following the administrative-territorial reform, fiscal decentralization has dynamically evolved, boosting local public revenues and granting greater discretion in their use to meet community needs. The specific law on local self-government finances led to increases in both own revenue and revenue from unconditional transfers. Further reforms have improved local public finance management, including local budgeting reforms, enhanced transparency of tax collection and expenditure, and self-assessment and monitoring of local government's financial status. These modernization efforts related to local finances have yielded positive results regarding macroeconomic stability, fund predictability, and transparent use of public funds. Consequently, central and local governments prioritize public investments in infrastructure and sector revitalization in their budgets. Local public investments have risen annually, driven by increased local income from taxes and government transfers. This growth reflects the focus of local and central development policies on addressing infrastructure and logistical challenges. The consolidation of decentralization and stable central budget transfers have created favorable conditions for local governments to implement new policies enhancing service quality and public investment performance.
In accordance with the Imperial Constitution of 1871, the German Empire of the late nineteenth and early twentieth centuries was a federal state. The governments of the center (the Reich) and the federal states pursued a fiscal policy that had some features of âproto-competitiveâ federalism. Over the subsequent fifty years, however, German federalism evolved toward fiscal federalism. This transition was finally consolidated during 1919 and 1920 due to some endogenous factors and even more to exogenous ones. The article is based on statistical material as well as research from various studies, including those available from the library of the Goethe-Institut. The article compares the extent to which there were indications of proto-competitive federalism in the German budgetary system prior to Matthias Erzbergerâs (finance minister of the German Empire) financial reforms (1919â1920) and indications of fiscal federalism after them. The transformation in both the distribution of power and responsibility as well as in provision of resources by various levels of the budgetary system to support those changes during the transition from proto-competitive to fiscal federalism is analyzed. The attempt to strike a balance between the fiscal interests of the center, federal states, and municipalities is explored; and equalization is singled out as a new function of the empireâs budget process. The creation of a so-called self-sufficient economy in the empire just before the First World War and its subsequent survival under pressure from sanctions and international isolation demanded a flexible balance between centralization and decentralization of spending powers along with an appropriate allocation of resources. Fiscal federalism through centralization of funds allowed Germany to begin recovery from geopolitical and socio-economic challenges, while maintaining decentralization primarily in non-tax revenues encouraged local governments to continue developing their economies. The logic derived from this historical study of the changing models of German fiscal federalism is also applicable to Russia: the reduction of revenues and growth of expenditures in the Russian Federationâs federal budget in recent years makes centralization of fiscal resources at the federal level more important, and the growth of expenditures in the regions and municipalities necessitates transfers and equalization measures.