The Competition between the Municipalities is positive for everyone. That's why let's encourage her.
Fiscal decentralization is still a far-off concept in Bulgaria, despite the support from all major political parties for transferring tax revenues directly to the municipalities.
Fiscal decentralization is still a far-off concept in Bulgaria, despite the support from all major political parties for transferring tax revenues directly to the municipalities.
The Institute for Market Economics stands behind the idea of “keeping” 2% of income tax in the municipality of residence of the taxpayer (see http://dvenasto.bg/). According to IME’s calculations, based on the number of employed people and the wage level in each municipality, this small share of tax revenue would amount to 850 million leva in 2021 ( you may find figures for each municipality in the appendix).
Our observations throughout the years, the many regional analyses we have published (https://www.regionalprofiles.bg/), and the data we have collected (https://265obshtini.bg/) show that due to their specific regional attributes, some municipalities manage to attract people and investors, whereas others remain stuck on their path to development. There are also those municipalities that possess all prerequisites to grow but lack the required resources. Our proposal for fiscal decentralization has several benefits - we present the broader ones here [1].
Decentralization boosts economic growth
Research conducted by the OECD outlines a clear positive relationship between decentralization of revenues and growth. The results show that a 10% increase in tax revenues for the municipalities results in a 0.1% faster growth.
Decentralization lowers inequality
One of the main motivations behind decentralization is that it reflects the needs and wants of local communities better. Therefore, it is no surprise that decentralization is linked to the improved efficiency of municipal services. Furthermore, decentralizing could yield additional social capital in the form of higher trust in local authorities, resulting from efficiency gains, increased transparency, and the more active participation of the municipality in the distribution of public funds.
Decentralization increases life expectancy
Research shows that healthcare costs fall, and life expectancy rises in the presence of moderate decentralization. However, the trend reverses when decentralization becomes excessive.
Decentralization boosts academic achievements
When it comes to education, data shows that a 10% increase in local tax revenues increases PISA results by 6%, which equals going six places up in the rank list. A similar but weaker connection is observed in the presence of other measures for decentralizing education, like increasing the autonomy of schools.
Decentralization allows for better tending to local needs by boosting competition, convergence, and investment
Higher local fiscal autonomy allows for shaping public services on a local level so that they are more in line with the preferences of communities. Moreover, higher levels of autonomy in municipal budgets allow for higher interregional competition in social services.
Decentralization is also linked to higher public investment – a 10% increase in decentralization (measured through local expenses and the ratio of local revenues to total state revenue) “boosts the share of public investment in total state expenses from 3% to more than 4% on average”. Investment incentivized by decentralization targets human capital, measured through education. This relationship is explained by pressures from interregional competition, which stimulates productive investment since regions strive to draw more workers and firms.
[1] Source - Fiscal Federalism 2022 MAKING DECENTRALISATION WORK by the OECD, December 20th 2022
