Fiscal decentralization in Romania: present state and perspectives

 Marius Dincă

Gheorghiţa Dincă

Gheorghe Ialomițianu

Transilvania

Objectives: We will investigate the possibilities for implementing a degree of higher fiscal decentralization in Romania’s case, taking into account the specifics of the administrative organizational context of Romania and the present fiscal situation, that reflects the timid first steps toward a more comprehensive and effective decentralization.

Currently, the public local administrations keep at their disposal the local taxes (such as the land tax, the buildings’ tax, the transportation means’ tax), but obviously those are not enough, since every year their budgets are balanced only through important transfers from the Romanian public budget.

We think that the fiscal decentralization in Romania has to take into consideration the need to offer a new incentive for local and regional development as well as the stringent need for the rationalization of the money circuits, having in mind that out of one Leu (or Euro) that is sent to the state budget the local community and its taxpayers will only receive back a fraction of one Euro (if we suppose that those money would finally be destined back to that community), in the most optimist situation.

In the same time, the fiscal decentralization should lead to the delegation of some attributions to the local level (such as education and health services). In return, that implies that the local community should be awarded directly (should retain in the first place) either a quota out of all the taxes that are collected from its fiscal territory or the entire amount of some taxes (direct or indirect). One solution could be that the direct taxes (such as company income tax and the individuals’ income tax) should be withhold at the local level and maybe the indirect taxes (VAT and excises) should go to the general public Romanian budget for the overall needs of the country (defense, public order, justice, infrastructure and other).

            Data/Methods: The data will be collected from the county department of public finances and from statistic data issued by the National Statistics Institute and Romanian Finance Ministry. We will try to simulate the effects of the proposed decentralization upon the Romanian Public Budget as well as upon the Local County and Municipal public budgets. Also we will try to assess the capacity of the local authorities to take over the supplementary fiscal, financial and administrative tasks involved by the decentralization action.

            Results/Expected Results: We will try to substantiate the assertion that the fiscal decentralization would be beneficial to the Brașov local community but also at the national level and that would lead to higher efficiency in the management of public finances, to better public services and to an increased motivation and emulation for the residents of each local community. We think that a Hunter’s index (an index that quantifies local decentralization degree) close to 1.0 should be the goal of fiscal decentralization in Romania.