engleski

Fiscal federalism in function of economic development

Fiscal federalism is a fiscal system in federative states, which, however, can exist in unitary states aswell if there are more than one carrier of fiscal government. It includes relations between higher and lower political-territorial units concerning authorisation for establishing and incorporating certain sources of public revenue which finance their expenditure and which consequently have great effect on economic development of specific regional and local self-government unit. Fiscal federalism is relevant part of the theory of public finances which deals with problems of decision making process, capabilities of assessment of liability for taxation and usage of collected means in public sector with two or more levels of fiscal government. Use of fiscal decentralisation in theory and in practise varies from each country to another. It is dependant of system of government, territorial constitution, economic and social development, historical and political circumstances which in the end determine entire configuration of public finances. Which sources of fiscal revenue, in what capacity and in what way to distribute are the main problems that all federative states encounter frequently. However, states that are not federative, but have developed system of regional and local self-government encounter the same problems because of the high level of decentralisation of public functions. If the distribution of public functions (expenditure) is more decentralised, than there is larger disproportion between costs of its performance (i.e. production of public goods) and public revenue by which a certain political-territorial unit disposes of. So, it is necessary to ensure additional means. This is the way to ensure coherence between needs for means (of expenditure) and financial capacities (revenue) in all levels of fiscal government. Fiscal disbalance occurs when there is discrepancy between public expenditure and derivative public revenue. It usually occurs when we talk about lower political-territorial units and we firstly think about horizontal fiscal disbalance. Horizonatal fiscal disbalance means existance of differences in fiscal capacities and fiscal needs of political-territorial units of the same level. Thereupon occur certain migrations of citizens from poorer and economic underdeveloped political-territorial units to wealthier and economic developed political-territorial units where they can enjoy that amount of public goods that will satisfy their needs which brings to big disproportion when we talk about economic development of the certain regional and local self- government unit that must recognised and dealt with in time. Aim of this paper is to show the benefits of fiscal federalism and to draw attention to the problems concernig revenue collection or the lack o fit when the local and regional self-government unita are in question.

Fiscal federalism ; public revenue and expenditure ; economic development

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