Decentralizing Fiscal Systems in Transition Economies

Since 1989, extensive political and fiscal decentralization has been under way in almost all countries in Central and Eastern Europe, Russia, Ukraine and the other countries of the former Soviet Union. The trend toward fiscal decentralization and the transfer of some revenue-raising and expenditure authority from central to lower-level and subnational governments is, in part, a political reaction from below against the long years of extensive central control. Its economic motivation relates, on the one hand, to efforts by the center to ease its own strained finances by reducing transfers and shifting spending responsibilites and, on the other hand, to a widespread recognition that public funds need to be used more efficiently.

Since the transition, "local self-government" legislation has been enacted in virtually every former centrally planned economy in the region, giving subnational governments major responsibilities for expenditures in key areas. However, the new legislation in these countries has generally not assigned clear responsibility to different levels of government for particular expenditures. Efforts to ease fiscal strains at the center seem to have shifted important spending responsibilities to subnational governments without sufficiently expanding their revenue sources. Recent legislation in Hungary and Poland, for example, has given local governments expenditure responsibilities in education, transportation the environment, and housing without including specific plans for how they will be financed.

This shift in expenditure responsibilities, however, has created serious budget pressures for subnational governments, risking the crowding out of important expenditures, including those for health care and education.

The transition economies are in the midst of decentralizing their fiscal systems. But it is obvious even at this stage that the fiscal reforms should include increasing subnational governments' own revenue sources, assigning them the necessary tax instruments, and designing transfers and sharing arrangements that can provide them adequate revenues to meet their spending needs. Each level of government must know what its fiscal responsibilities are. Well designed decentralization policies will help improve the lives of those undergoing one of the major upheavals of our time - the move from a command to a market economy.

Words you may need:

Англійський	Російський	Український
decentralize	децентрализировать	децентралізувати
to be under way	быть в процессе осуществления	бути у процесі здійснення
from below	снизу	знизу
ease	облегчать	полегшувати
strained	напряженный	напружений
self government	самоупрвление	самоврядування
assign	передавать	передавати
upheaval	переворот	переворот

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