Fiscal decentralization and equalization transfers in Georgia: evidence from municipality-level data

Abstract

ABSTRACTGovernments worldwide face the difficult task of how to decentralise fiscal means across regions and cities and it is even more challenging when governments are under pressure, such as some post-communist economies in eastern Europe and Asia. A case in point is Georgia, a diverse Caucasian country with internal pressures from regions with independence tendencies and external pressures from Russia. How Georgia’s government decentralises is what we provide new evidence for in this paper using two data sets. First, we use internationally comparable data to evaluate how decentralised the Georgian public finances are. We find that Georgia is in fact one of the least decentralised transition countries and has become less decentralised recently. Second, we use detailed municipality-level data for Georgia to determine the effects of equalisation transfers focused on fiscal decentralisation. We discuss the unequal nature of these transfers and we evaluate three reform proposals for changing them.