Local budgets’ incomes in the conditions of decentralization

Abstract

The peculiarities of local incomes budgeting in the conditions of decentralization are outlined in the Ukrainian context. It is shown that a larger part of budget resources in the latest years was accumulated in the central budget of Ukraine, which is an indication of the high level of centralization of the budget system in Ukraine. It results in the financial weakness of local governance bodies at region, village or city level, which get only a minor share of the consolidated budget incomes. This requires financial decentralization of the budget system.

It is shown that once the financial independence of local governance bodies occurs, this will help to enhance their effectiveness in terms of better satisfaction of needs and interests of local communities. If the financial independence of local governance bodies is not high, then the local communities and local administrations will be incapable to take on the responsibility for mobilization and use of local financial resources.

It is shown that the level of decentralization can be measured by the share of GDP allocated through local budgets. The steadily declining share of local incomes in the consolidated budget incomes and in GDP has been observed for the last fere years. Another measure of the growing dependence of local budgets on the central budget is the increasing transfers from the central budget to local budgets. The analysis of local budgeting shows that the share of incomes in GDP and in the consolidated budget of Ukraine is not high and has a downward tendency. It shows that no essential change has occurred in the budget distribution, with the financial resources still being concentrated in the central budget. The structure of local budgets’ incomes is characterized by a high share of budget transfers, being an evidence of heavy budgetary dependence of local government bodies in Ukraine. Once the share of local budgets’ incomes in GDP is increased, it will allow for financial independence of local governance bodies in the conditions of decentralization.