Abstract
Fiscal decentralization has been widely discussed at various levels and from various perspectives. The Organization for Economic Co-operation and Development (the OECD), similar to the World Bank, also pays great attention to it. Fiscal decentralization has always been an interesting investigation topic, and the researchers, in addition to considering the future of the economy, study this problem from different perspectives, i.e. geographic, political and others. The effect of fiscal decentralization on the economic development of the state has been investigated by various authors. Three different hypotheses provide the proofs of the positive effect of fiscal decentralization. The main advantage of fiscal federalism are efficient and adequate public services which are provided locally through the mobility of the citizens, voting power and competition between the local governments in the created ecosystem. The potential advantages of the competition among the local government powers are similar to the advantages associated with the competition on the private markets. The paper is focussed on fiscal decentralization of the state. It aims to investigate the theoretical aspect of the impact of fiscal decentralization on the economic development to calculate the index of fiscal decentralization and to evaluate the effect of fiscal decentralization on the economic development in the particular states of the European Union. Thus, Bulgaria and Lithuania have the lowest fiscal decentralization index of EU-13 (0.28), while the Czech Republic has the highest index (0.46). The researchers have proved the effect of fiscal decentralization on the economic development of the EU-13 states to be statistically significant and positive. The originality of this paper is that it introduces a theoretical model for evaluating the fiscal decentralization effect on the economic development and assesses the fiscal decentralization effect on the economic development of the particular EU-13 states.
Highlights
The history of the formation of the local government began around 500 years BC
According to the International Organization for Economic and Cooperation Development (OECD, 2013), decentralization and funding of public services in recent years has led to the increasing interest from politicians
The importance of local authorities was highlighted by the President of the European Committee of the Regions (CoR), Mercedes Bresso, in the report in Brussels stating that the high economic level 2020 should be maintained in 2020 (Kyriacou et al, 2017)
Summary
The history of the formation of the local government began around 500 years BC. Since the times of the ancient Greece the term "democracy" (Gr. demos - People, kratos Power) has been used (Grillo & Nanetti, 2019). The theoretical description of decentralization problems can be found in the philosophers and politicians works of Rousseau, Mill, de Tocqueville, Montesquieu and Madison from the 17th-19th centuries. According to the International Organization for Economic and Cooperation Development (OECD, 2013), decentralization and funding of public services in recent years has led to the increasing interest from politicians. The importance of local authorities was highlighted by the President of the European Committee of the Regions (CoR), Mercedes Bresso, in the report in Brussels stating that the high economic level 2020 should be maintained in 2020 (Kyriacou et al, 2017). The level should be increased to include local and regional authorities as in many countries local authorities are a major factor in pursuing their economic policy. It is of particular importance to the OECD and the World Bank
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