Abstract
The paper presents a direct international comparison of the existing fiscal decentralization systems of European Union member states (hereinafter EU-28), which are also signatories of the European Charter of Local Self-Government (hereinafter ECLSG or Charter). The results of the benchmarking show that the conceptual index of fiscal decentralization (hereinafter CIFD) is an appropriate tool for direct international comparison of different fiscal decentralization systems, while allowing measurements of their effectiveness, as there is a direct link between the CIFD and the basic principles of the ECLSG. The CIFD is an upgrade of classical methods (indicators) used to measure fiscal decentralization, and, at the same time, reflects the consideration of the selected basic principles of the ECLSG. The CIFD consists of five indicators, four of which represent quantified selected basic principles of the ECLSG, and the fifth indicator represents the number of lower management levels. Thus, with the use of CIFD, the EU-28 obtained definite levels of fiscal decentralization, while, due to the established direct link between the CIFD and the ECLSG guidelines, the indices in the index structure themselves indicated either greater or lesser compliance of their fiscal decentralization systems with the selected basic principles of the Charter. The paper concludes with a simulation of an empirical conceptual model of fiscal decentralization (hereinafter CMFD) which is now offering the opportunity to identify critical points or shortcomings of the existing fiscal decentralization system in each country, limiting or even eliminating them with the aim of achieving a highly efficient system of fiscal decentralization.
Highlights
The literature in the field of fiscal decentralization evinces no consensus on how to unify the mutually different fiscal decentralization systems of individual countries
The results of the benchmarking show that the conceptual index of fiscal decentralization is an appropriate tool for direct international comparison of different fiscal decentralization systems, while allowing measurements of their effectiveness, as there is a direct link between the CONCEPTUAL INDEX OF FISCAL DECENTRALIZATION (CIFD) and the basic principles of the EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT (ECLSG)
We focus on the selected fundamental principles in the Article 9 of the ECLSG that relates to local community financial resources, which we believe to represent the foundation for establishing an effective fiscal decentralization[1] system in every member state of the Council of Europe; these systems should be rooted in the principles of flexibility, financial resources being commensurate with responsibility, autonomy and equality
Summary
The literature in the field of fiscal decentralization evinces no consensus on how to unify the mutually different fiscal decentralization systems of individual countries. We assume that CIFD represents a model of the real situation and that it is comprised of such parameters/indicators whose value can change in different observation periods Such indicators were used to prepare a simulation of an empirically based CMFD, which reflects high compliance with the fundamental principles of the ECLSG and can be used by member states (that is, signatories to the Charter) as a basis for improving the effectiveness of their existing fiscal decentralization systems. We assume that two of the fundamental principles of the ECLSG, that is, the ‘principle of local government financial resources being commensurate with responsibilities’ and ‘the principle of local authority autonomy’ represent greater importance weighting when forming effective fiscal decentralization systems in individual countries than the other two fundamental principles, ‘the principle of flexibility’ and ‘the principle of equality’. The countries whose CIFD value is equal to or lower than the calculated average of CIFD value for all EU-28 countries (0.59) are ranked in the group of countries with low fiscal decentralization levels (Fiscal Decentralization Group 3; hereinafter: FDG3)
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