Abstract
ABSTRACT This study treats operating budget surpluses as an absorption problem rather than a strategic fiscal policy. Applying a system generalized method of moments (GMM) model on panel data from 80 Macedonian municipalities for the period 2006–2020, the study examines the relation of decentralization and vertical fiscal imbalance with these systematic operating surpluses. The findings from the study are mixed. The findings from this study are relevant to all developing countries undergoing fiscal decentralization reforms, especially post-socialist countries. This study fills a void in the literature examining non-strategic surpluses in recently decentralized local governments.
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