Ensuring independence of local budgets under conditions of financial decentralization

Vitalii Pysmennyi
Doctor of Economics, Associate Professor of Finance Department named after S. I. Yurii, West Ukrainian National University, Ukraine, e-mail: v.pysmennyi@wunu.edu.ua, ORCID ID: https://orcid.org/0000-0001-7852-3627

Cite this article:

Pysmennyi, V. (2021). Ensuring independence of local budgets under conditions of financial decentralization [Zabezpechennia samostiinosti mistsevykh biudzhetiv v umovakh finansovoi detsentralizatsii], Socio-economic research bulletin, Vìsnik socìal’no-ekonomìčnih doslìdžen’ (ISSN 2313-4569), Odessa National Economic University, Odessa, No. 1 (76), pp. 144–156.

Abstract

The article investigates the modern conditions and problems of forming local budget revenues in Ukraine. It is determined that local budgets must function as a well-oiled machine ensuring the equivalence of financial resources and planned allocations under conditions of financial decentralization. Approaches to ensuring budgetary independence are substantiated, outlining the tools necessary for local self-government bodies to ensure their capacity to develop. It is established that increased emphasis on independence of local budgets can become one the levers used for ensuring the local finance system complies with the principles of the European Charter of Local Self-Government and Law of Ukraine «On Local Self-Government in Ukraine». For this purpose, local self-governments are recommended to establish a sufficient and stable revenue base by introducing their own taxes and fees, expanding the non-tax revenue sources, changing the distribution of the revenues from the income tax and corporate tax between government budgets of different levels, creating community funds of economic development, balancing subsidies and subventions. It is argued that budgetary independence is an economic ideal that local self-government bodies should strive for. Its antipodes are rigid financial dependence of local budgets on state budgets, lack of own revenues, and ineffective distribution of funds between budgets of different levels. Additionally, the revenue sources specified in the legislature do not allow the authorities to sustain expenditures with the levies at local level. It is substantiated that territories with independent local budgets can create the state economic environment that corresponds to the principles of financial decentralization.

Keywords

local budgets; local budget revenues; budgetary independence; financial decentralization.

JEL classification: H710; DOI: https://doi.org/10.33987/vsed.1(76).2021.144-156

UD classification: 336.14:352

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

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