Starting from the mid 90s many governments in transition countries has pursued a policy of gradual fiscal decentralization. The rationale underpinning the decentralization is designed to be the improvement of public products and services. Arguably, it is assumed that more independent local governments offer better public products and services as well as they conduct improved tax policy since they are more flexible and better familiarized with public needs and possibilities as well as economy as a whole.
The scope of particular transition government depends on several factors including the particular character of revenue decline, hardships and pace of transformation reforms as well as on initial (pre-reform) government’s scope of activities. My working hypothesis is as follows: in addition to theses factors fiscal decentralization played crucial role in maintaining the desired scope of public expenditures. More decentralized governments such as those in Hungary, Lithuania, Estonia, Poland, and Uzbekistan ceteris paribus have maintained better scope of functions. They managed to avoid the decay of public sector via the release of greater authority to local organs in regards to supporting public education and health care system as well as to organization of efficient social safety system.
The data on budget of all levels will be assessed across all transition countries. The performance and the share of local budgets in total government size will be analyzed within the framework of public expenditures scope. Where possible special focus will be granted to country-specific and unique public projects and programs which have been successfully implemented in the transition countries.
Cross-country quantitative analysis could be done in assessing the relationship between the quality of primary public education and public health care system, public infrastructure as well as efficiency of social protection benefits with the degree of decentralization of public finance system.
Study can go beyond the coverage of transition economies. Comparative analysis of transition economies or group of economies with selected OECD, Latin America and Asian economies can be done.
The relevant literature by Barro, Popov, Alesina, Shleifer will be reviewed and assessed. Besides the literature on federalism will be studied, so as to see if reduced effort at the central level generally increases it at the local and provincial level. Does it depend on the kind of fiscal sharing? Use of own resources?
The research’s findings will be presented at the 66th International Atlantic Economic Conference, Montréal, Canada.