Horizontal equalization of regional budgets in the system of interbudget financial provision of regions of Ukraine

Abstract

The purpose of the study is to investigate a financial component of interbudget relations in Ukraine in part of providing and improving the horizontal equalization of regional budgets under the conditions of decentralization. We aim to measure horizontal fiscal imbalance in Ukraine before and after implementation of the decentralization reform: the changes in the horizontal levelling of regional budgets in pre-reform period and during a period of budgetary decentralization. The methodology of the research is based on the theory of public finance, in particular on the theory of fiscal federalism. Study uses the estimation of the statistical data of the authorized bodies related to the distribution of the state budget funds over the regions of Ukraine. The time interval of the research is four years (2015-2018) due to the starting time of implementation of the decentralization reform in Ukraine and the availability of published statistical information. Software packages MS Excel 2016 and SSPSS Statistics 17.0, StatGraphics Plus 5.0 are used for economic-statistical calculations. Such analysis is conducted using the methods of synthesis, tabular, graphic, cluster and correlation analysis. The constrains of the study are related to the incomplete statistical data of the State Statistics Service of Ukraine, the State Treasury Service of Ukraine and the Ministry of Finance of Ukraine. Results. It is proved that the equalization subsidy was the main tool for equalizing of the revenue part of local budgets. It formed about a quarter of revenue of local budgets and about half of official transfers of local budgets. It is found out that horizontal imbalance is much lower after the decentralization reform in Ukraine: after reforming the horizontal equalization, the absolute volume of the horizontal equalization decreased by 11.5 times, relative indicators decreased by 15 times. A detailed analysis reveals the existence of imbalances in the horizontal equalization of regional budgets in Ukraine in 2015-2018. Furthermore, the present system of horizontal equalization is ineffective according to the criterion of fiscal efficiency and contradicts a basic approach of budget decentralization. Four budget clusters are identified based on the criterion of distribution of basic subsidy: 1-st cluster of budgets with average size of basic subsidy (budgets of Vinnytsia, Zhytomyr, Chernigiv, Kirovograd, Khmelnytsky, Mykolayiv and Cherkasy regions); 2-nd cluster of budgets with minimum amounts of basic subsidy (budgets of Luhansk and Sumy regions), and with the change of directions of horizontal equalizationts (budgets of Donetsk, Kharkiv, Odesa and Lviv regions); 3-rd cluster of budgets with maximum size of the basic subsidy (regional budgets of Volyn, Rivne, Kherson, Ivano-Frankivsk, Ternopil, Zakarpattia and Chernivtsi regions); 4-th cluster of budgets of those who transfered a reverse grant to the State Budget of Ukraine (budgets of Dnipropetrovsk, Zaporizhzhia, Kyiv and Poltava regions). Practical meaning. The directions of improvement of the horizontal equalization of regional budgets in Ukraine are substantiated, among them: introduction of the index of horizontal equalization; constance of approaches to horizontal equalization for three years according to requirements of medium-term budget planning and sustainable development of regions; extending the interval of the index of horizontal levelling. The prospects for further study are related to the justification of the mechanism of financial provision of local government in the context of implementation policy of decentralization.