Political Economy of Local Level Public Sector Employment: A Case Study of Serbia

Abstract

This paper investigates the wider political economy implications of unpopular cuts in the number of public sector employees in local self–governments in Serbia, which took place in the first half of 2010. Since the onset of the global economic crisis, Serbia has faced serious fiscal pressure at all government levels, and reduction of public sector expenditure was identified as one of the most important adjustment mechanisms to the crisis, in accordance with the Stand–by Arrangement concluded with the International Monetary Fund. As this process was unfolding concurrently with efforts towards greater fiscal decentralization, the paper tries to contribute to an understanding of how local revenues are being allocated in times of crisis. The paper casts light on one of the most important issues of decentralization – transparency of local public expenditure – and the political economy of public sector employment in local self-governments in a country where employment is so scarce that the ability to employ gives local politicians considerable power over their electorate. We also present some findings from interviews with local authorities in six Serbian municipalities regarding cuts in public employment. The paper concludes that local public sector reform in Serbia (and probably elsewhere) needs to be more comprehensive and more carefully designed if it is to redirect resources away from current consumption towards sustainable local economic development.