Abstract
The article focuses on the issue of municipal funding from revenues collected by local governments and the state budget of Lithuania. In addition, it offers an evaluation of the Lithuanian practice in this field, discusses used methodological approaches and overviews practical experience of other countries as well as the relevant theory. Furthermore, it considers theoretical issues of local tax and tax distribution between levels of local government. Finally, it gives general principles of tax distribution and administration. The results of this investigation point to fundamental problems, relating the misbalance in funding of local governments with regional differentiation. The growth in disparities of municipal revenues demands a better redistribution of income, which includes an increasing amount of grants. However, the current system used for funding of local governments limits possible solutions that could address these problems. It should be considered that in 2009–2013, the lowest amount of municipal income per resident was identified in Vilnius County; whereas the highest amount was found in Utena (2009), Alytus (2010–2012) and Šiauliai (2013) counties.
Highlights
One clear trend in the development of the state government is to develop the independency of municipalities and expand their functions
− to equalise disparities between actual and planned revenues from personal income tax paid by municipal residents, provided the prognosis shows the lack of funds into the state budget;
During the analysed period (2009–2013), the income of Vilnius City Municipality per capita was the lowest and barely reached LTL 2000, while Alytus County had one of the highest incomes and has already exceeded LTL 2500 in 2012. This could have happened because compared with other municipalities, the part of personal income tax (PIT) transferred to the budget of Vilnius City Municipality was significantly lower and amounted to 42% until 2014 and 48% since 2014, while the majority of municipalities received 100% (Table 3)
Summary
One clear trend in the development of the state government is to develop the independency of municipalities and expand their functions This gives rise to additional difficulties in the field of funding. The problem is complicated, because the economic potential of municipalities is highly different, which determines unequal opportunities to receive income and provide services to the public These relevant problems can be addressed with the help of a universal method called the interbudgetary redistribution of funds which is known and, probably, broadly applied in many countries. This function of the method is discussed in the European Charter of Local. The unutilised balance of the latter is to be returned to the state budget at the end of a year (Davulis 2009)
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