News

In 2015 the number of registered crimes continued falling and reached 98 thousand in comparison with 135 thousand back in 2000. Crime levels have also decreased in relative terms - from 16.6 per thousand people to 13.6 per thousand people for the 2000-2015 period.  This trend was interrupted only during the first years of the crisis (2009 and 2010), during which the number of registered crimes was rising. One possible explanation for the surge in the beginning of the crisis is the quick increase in unemployment and the overall drop in per capita income.

Despite the decrease in registered crime rates, the number of unsolved cases has been decreasing even faster.  The total registered crimes have dropped by 28% in 2015 compared to the year 2000 but the number of unsolved crimes is 37% less for the same period.

Overall, this data shows that in 2015 only 39.2% of registered crime cases were solved. In the year 2000, on the other hand, 45.4% of the registered crimes were solved (55% remained unsolved).

This significant decline in the number of solved crimes can be explained with the lack of reform in the Ministry of Interior (MI) and mainly the fact that its huge budget is being spent primarily for salaries and maintenance and not for capital investment. Additional reasons are the sluggishness and the anachronistic characteristics of the system, the possible existence of corruption and unregulated practices between the MI and the judiciary system.

Additionally, the data shows significant differences between the number of crimes registered and solved in different Bulgarian districts.

In 2015 the lowest number of per capita crimes was registered in Kardzhali and Smolyan, where crime levels are over three times lower than those in the districts with the highest crime rates: Burgas and the capital Sofia. It is worth noting that the more economically developed districts are also the ones with the highest registered crime rates. Of course, there are exceptions. For example, in the moderately developed regions Ruse, Plovdiv, Veliko Tarnovo and Blagoevgrad there are comparatively low crime rates, while the districts Vidin and Pernik perform poorly in economic terms and register rather high criminal activity.

Compared to 2000, the number of registered crimes has decreased the most in the districts Varna, Shumen and the capital.  Only in four districts the rates per 1000 people from the local population are rising: Gabrovo, Sliven, Sofia and Haskovo.

The share of unsolved criminal cases varies significantly among different districts. In 2015 the share of solved crimes in Varna and the Capital is barely 30%, while in Razgrad, Silistra and Targovishte it is over 60%. On the one hand, in the districts, which are more economically developed, the registered crimes are more and the relative share of successfully solved crimes is lower. Targovishte, Razgrad and Silistra, on the other hand, are the districts with the lowest crime rates (per capita) and also have the highest disclosure rates.

In comparison with the year 2000, the success rate of solving crimes has declined in 20 of the country’s 28 districts, with the biggest drops being registered in Gabrovo, Burgas and Montana. 

Yavor Aleksiev, Bozhidar Radev*

On the background of the frequently discussed data about the external migration of the population, the migration processes in the country itself are often left aside from the public interest. The examination of the data from NSI (National Statistical Institute) for the period between 2007 and 2015 shows, that 79% of the migration is actually internal for the country and migration toward the capital is 2.7 times lower than the total migration toward the other 27 districts.

The mechanical movement of the population between the districts tracks people who have changed their current address. Here, the data describe both the internal and external migration by means of the emigration of the population from a given district. Since 2007 the data of the mechanical movement of people between the districts of Bulgaria include also data about external migration, because of which our focus is exactly on the period 2007-2015. More detailed data about migration to and from each district throughout the years is available on the website of NSI.

In this article, we divide the population of each district into three groups: 1) headed toward the capital; 2) headed abroad; 3) headed toward foreign countries. The individuals who change their current address without leaving the borders of the district, which they inhabited before (for example, a person who moved from Nessebar to Burgas), are not subject to the current analysis.

Source: NSI, calculations of IME

In the time period between 2007 and 2015 the individuals who change their current address, while at the same time leaving the district, in which they reside, constitute almost 743,000 people. Around 157,000 of them move to the capital, and almost 156,000 abroad. The remaining 430,000 change their current address with one in another district of the country.

In each year of the period 2007-2015, over 50% of the people who change their current address, actually go in one of the other 27 districts of the country. The most people move to Plovdiv (47,000), Varna (44,000) and Burgas (34,000), and the least move to Vidin (6,700), Smolyan (5,700) and Kardzhali (below 5,000).

The peak of the migration toward the capital is in 2011, when almost 26% of the individuals who have changed their current address head precisely toward it, and only 15% go abroad. 2011 is the year with the least amount of mechanical movement of the population and the reason is the fall of external migration. In 2011 the number of people who have changed their current address with one abroad drops around three times compared to 2010: from 27,000 to 9,500 people. In the period 2012-2015, however, there is a tendency that more people prefer foreign countries rather than the capital, while in the last two years of the period for the first time a bigger proportion of the population leaves the country rather than moves to the capital.

A quick analysis of the interaction between different socio-economic indicators and the mechanical movement of the population shows moderately positive relation between the migration toward Sofia and the age structure of the population by districts. The greater the age correlation (measured as the ratio between the number of individuals of age above 65 and those of age from 0 to 14, or as a ratio between those of 65 years or above and those in the age 15-64), the higher the proportion of people who have moved to the capital. Vice-versa: the more unfavorable the age structure, the lower the migration toward both foreign countries and other districts.

MIGRATION TOWARD SOFIA

The distance to the capital definitely has an effect on the decision to move to it. The three districts, from which the largest portion of the population in the period 2007-2015 has headed toward the capital, are the Sofia district (56.3%), Pernik (50.5%) and Kyustendil (43.8%). In unison with the tendency of concentration of the employment in the South-West region of the country in Sofia (already above 66% of the employed in the region work precisely in the capital), the most likely cause along with the proximity is the labor migration.

The least are the migrants from the distant Razgrad (9.4%), Sliven (13.9%) and Targovishte (14.1%), followed closely by Kardzhali and Shumen (each with 14.3%). The only districts, from which the migrants in the capital have been less than 10% in any of the years, are Razgrad (in every year of the period 2011-2015) and Kardzhali (in 2015).

There are no clear tendencies of a more intensive migration toward the capital from none of the districts of the country. In accordance with the overall picture, more and more individuals are headed abroad, while a traditionally large portion (above 50% in each of the years) in other districts. However, a gradual fall of the migrants toward the capital from almost all districts in the Northern part of the country can be noticed, including from Vidin and Vratsa, which are among the districts with a traditionally high level of migrants in Sofia. Given the depopulation in large areas of those districts, it is possible that those who had the plans to move have already done it.

MIGRATION TOWARD FOREIGN COUNTRIES

The migration toward foreign countries has its peak in 2014, when 25.9% of the individuals are headed this way. In 2015, this portion falls to 25.4%, which, however, is the second highest for the period. Most significant for the whole period is the migration toward foreign countries from the districts Kardzhali (35.5%), Varna (30.5%) and Plovdiv (29.8%).

In contrast to this data, only one of every five people, who have left Sofia in the period 2007-2015 has gone abroad, while the rest have headed toward other districts. This portion is even smaller in neighboring the capital districts, like the broad Sofia district (only 9.8%) and Pernik (15.4%), from which the greatest amount of people change their current address exactly with one in the capital.

MIGRATION TOWARD OTHER DISTRICTS

A huge part of the capital’s residents, who change their current address, move to the broad Sofia district. Varna continues to be a center of attraction of the population in the North Central and North-East regions of the country, while the districts Plovdiv and Burgas are such for those of the South Central and South-East regions. Precisely this process explains the positive mechanical growth in these districts in the observed period (with the exception of 2009-2010 for district Plovdiv and 2012 for Varna and Burgas). In other words, in those three districts more people continue to immigrate, rather than emigrate.

* Bozhidar Radev is an intern in IME

[1] Due to the fact that the data from NSI shows a change in the current and not the permanent address, it is possible that the same individual shows up in the statistic two or more times in the duration of the observed period.

[2] Although Kardzhali is the district, in which the inflow of people from inside the country is the smallest, it is one of the districts with the most intensive external migration. At the same time the migration of the population of district Kardzhali toward other districts in Bulgaria is relatively low, i.e. the movement of the population abroad and from abroad (of course, mostly from and to Turkey) has a much bigger influence, compared to the other districts.

Yavor Aleksiev, Bozhidar Radev*

The current inability of Bulgarian municipalities to carry out independent fiscal policy leaves EU funds as the only option for financing local projects. The prior statement is especially true for undertakings, which require significant capital investment, such as building a sewage-treatment plant. It goes without saying that the efficiency of the use of EU funds depends highly on how and for what purpose they are spent. This means that 1 million BGN spent in one municipality may lead to greater benefits than 10 million BGN spent in another. Therefore, the actual amount of operational program funds, provided for municipalities as beneficiaries, is one of the main indicators of the success or failure of municipal administrations – if nothing else, at least it is a signal of activity and administrative capacity.

Up until mid-May 2016 Bulgarian municipalities have received close to 5 billion BGN, as beneficiaries of the EU operational programs. This sum includes only the amounts that have already been paid (and not those that have been agreed upon) for the entire period since Bulgaria’s entry into the European Union, which means that the data is cumulative and includes previous program periods as well as the beginning of the new period. In order to make a comparison between different regions and municipalities we divide this sum by the annual average population.

Bulgarian municipalities have received 689 BGN per capita of the annual average population by the middle of May 2016 compared to the 565 BGN/capita in the beginning of 2015 and 380 BGN/capita in 2014, when our previous analysis on the subject were published.

This higher rate of absorption of EU funds during the past two years was expected in light of the end of the prior 7 year program period (2007-2013) and the opportunity for using the funds until 2015.  Of course, the more efficient utilization somewhat reflects the increased managerial and administrative capacity of some Bulgarian municipalities, at least concerning the governance of EU funding.

The analysis of the data leaves these main impressions:

• The absorption rate of EU funding of municipalities as beneficiaries of the operational program is notably uneven. Proportionally to the population this rate varies from 4,773 BGN per capita in Sozopol to 0 BGN per capita in Gramada.
• There is no correlation between the size of the municipality and the absorbed funds per capita of the local population. There plenty examples of small municipalities, with high utilization of EU funding (such as Kostinbrod, Lukovit, Sozopol, Pirdop) as well as large municipalities (such as Plovdiv, Pazardjik and Kyustedil) where the absorption rate is below the average for the country.
• The difference in the ability of municipalities to manage EU funding is increasing. While some of the municipal administrations are able to continue to win and carry out successfully EU funded projects, others are yet to adopt best practices and attain the necessary administrative capacity.

Utilization on a Regional Level

Gabrovo continues to be the district with the highest absorption rate of EU funds (166.5 million BGN up until mid-May 2016, an average of 1,444 BGN per capita. The runner up is the district of Burgas in which the utilized funds are 585.3 million BGN, but the larger local population of the region leads to a lower average of 1,414 BGN per capita.

The lowest absorption rates are in the districts Kjustendil (367 BGN/capita), Sliven (378 BGN/capita) and Ruse (472 BGN/capita). The municipalities within the Burgas district have utilized significantly more funds per capita for the period January 2014 – May 2016 (578 BGN), than these three municipalities for the entire program period.

Utilization on a Municipal Level

The worrying fact is that the number of municipalities, which utilized less than 100 BGN per capita, remains unchanged (30) since 2015. The majority of them are small and the biggest ones are Kirkovo (Kurdzhali) and Dulovo (SIlistra) with a population of respectively 21.4 and 28.0 thousand people in 2015.

Problems with the absorption of EU funds exist due to many factors such as the lack of administrative capacity of some municipalities, the low quality of their strategic development documents, the central government’s tendency to pick political favorites from certain municipal administrations, the failures of public contractors etc. In many cases the strategic documents follow pre-made templates instead of serving as long-term sustainable planning instruments for the development priorities of municipal governments.

Utilizing EU funds isn’t a panacea for the challenges faced by the Bulgarian regions. On the contrary, the fixation of municipal administrations on EU projects leads to negligence towards other aspects of regional development such as creating an environment that is favorable to investment. Unfortunately, for many Bulgarian municipalities EU projects are used not as means of increasing investment but as its alternative. This is due to the last few governments’ renouncement from a financial decentralization policy. 

The growing gap between the municipalities achieving high absorption rate and those at the bottom of the list shows that the demographic reality in Bulgaria leaves some municipal communities with serious challenges in terms of securing enough administrative capacity for managing EU funds. Despite territorial-administrative reform not being a priority, this is a process which cannot be avoided, especially if the fiscal authority of municipalities remains unchanged.

* Bozhidar Radev is an intern at the IME.

Yavor Aleksiev

The long-awaited data for the development of the labor market in the first quarter of 2016 shows dormant structural problems disguised as betterment. Just as the IME predicted, the economic activity of the population stopped increasing and remained at last year’s levels, which led to a slower increase in employment. In the period January-April 2016 the amount of people employed increased by 25.3 thousand, which is the lowest growth rate on a yearly basis since the beginning of the labor market’s recovery.

Annual change of the number of people employed (quarterly data), thousand people

Source: NSI

The slower increase of the number of people employed was expected taking into account the stagnation in the economic activity and the structural character of the unemployment in Bulgaria. More than half of the people currently seeking occupation are long-term unemployed, which means that until now the labor market recovery has passed them by. If the economic activity doesn’t begin surging again the potential rise of the amount of people employed in the following quarter may be even lower, since the economy will have to create additional conditions for including, specifically, the long-term unemployed.

The data on youth unemployment continues to disappoint. In comparison to the first quarter of 2015 the amount of young people employed aged between 15 and 24 falls by 8.4 thousand, which leaves the employment coefficient to be only 19.4%. A serious decrease can be seen in the youth unemployment – from 23.2% in the first quarter of 2015 to 18.4% for the same period in 2016. This however, isn’t caused by higher youth employment but as a side effect of their lower economic activity.

Current Situation on a Regional Level

Considering the labor market data from a regional standpoint shows that the increase in number of people employed is more evenly distributed in comparison to previous periods.  Most jobs are created in Sofia (capital) and Burgas.

Most notable is the improvement of the labor market in the capital where the employment level is growing for a 14-th consecutive quarter and already overshadows the pre-crisis levels reaching 666.3 thousand people, while it was 656.0 thousand in the same period in 2015. Sofia (capital) continues to concentrate a huge portion of the Southwestern region’s labor force - 2/3 of the employed people in this region work in the capital. A notable surge in employment can be seen in the wide Sofia region as well as in the Kyustendil region however it is too early to assume the existence of positive tendencies in the labor market of these districts.

In the Northern parts of the country there is an increase in the people employed in the districts Gabrovo (hike of 3.2 thousand people), Silistra (2.8 thousand people), Targovishte (6.1 thousand people) and Shumen (3.9 thousand people).

The number of people employed in Veliko Tarnovo and Varna falls for the first time in respectively two and three years. In Varna however, the drop is somewhat symbolic (only 700 people less than the first quarter of 2015) and the number of the employed remains close to 210 thousand people.

For a second consecutive quarter the only region in which the number of the people employed falls on a yearly basis is the Northwest.  In this part of Bulgaria there is growth registered only in the Montana district.

The Effects of the Rise in the Minimum Wage and the Minimal Thresholds

The persistent decline in employment of some of Bulgaria’s poorest regions seems to be caused by demographic processes and not by the increasing price of labor. In the Vidin district, where the last increase of the minimum wage to 420 BGN meant that it now equals 65% of the average salary, the number of people employed via labor contract has surprisingly been increasing steadily from the start of this year. The drop in the number people employed according to NSI’s analysis of the labor force and the increase in the number of people employed via labor contract is not a rare phenomenon in the past few years and it does not necessarily imply the existence of contradicting statistical data. One possible explanation seems to be the decrease of the unregistered employment especially considering the recorded upsurge in the salaries in the private sector during the last few quarters.

Of course there’s always the possibility that the increase in the minimum wage and the minimal thresholds has slowed down or stopped the job creation process in some districts.  This is one probable explanation of the sluggish increase in the number of people employed for the difficulties in including young people in the labor market. One thing is certain, at this moment the upturn in the minimum wage does not help attract more people to the labor force. In the absence of demand for low qualified workers the new minimal salary can additionally slow down the job finding process for the long-term unemployed. The cumulative effect of a stagnating economic activity and a slower transition towards employment of the currently unemployed, can lead to a lethargic increase in the number of people employed in future periods as well.

Yavor Aleksiev

The labor market in Bulgaria continued creating jobs in 2015. The number  of the employed in the last quarter of 2015 is 72 thousands higher than during the same period of 2014, while the average unemployment rate dropped below 10% for first time since 2009.

Employment prospects in early 2016 are also positive and in line with a faster than expected GDP growth in 2015 and the increase in the number of workers on a labor contract.

It is notable that unlike previous years there is a much smoother job-creation in the north and the south of the country. To some extent this can be explained by the stronger 2013 and 2014 for large parts of Southern Bulgaria. In other words, while labor market recovery in some southern areas has completed or is about to do so, in parts of northern Bulgaria the recovery is yet to begin, or has just begun.

Northern Bulgaria

Positive development

Veliko Tarnovo and Varna are the districts with the best performance of the labor market in Northern Bulgaria in the past two years. Both recorded respectively 9 and 12 consecutive quarters of growth in the number of people employed - the longest period of growth after the capital (13 quarters).

After a long period of job losses the labor market in Ruse has finally bottomed out and in the last quarter of 2015 the number of people employed is 5,600 higher than the same period of 2014.

In Pleven the number of employees remained above 100,000 people for the second consecutive quarter and is at the highest level since the end of 2012.

Negative development

The number of people employed in Vratsa continues to decrease - in the last quarter of 2015 there are 54.5 thousand employed people compared with 60.6 a year earlier. The labor market in Montana and Silistra also remains depressed. Dobrich recorded four consecutive quarters of decline in the number of people employed, but decreases have been relatively moderate and part of it can be explained by a declining population.

Shumen failed to repeat the good results of 2014, but the last quarter was relatively favorable for the labor market and the decline in employment from April-September 2015 may prove short termed.

Southern Bulgaria

Positive development

The Southeastern region is the only one in which the number of employees during the last quarter of 2015, was higher in all districts than the same period of last year. It seems that in 2015 Burgas has already surpassed pre-crisis levels of employment and the labor market in the Stara Zagora district is gradually shaking off the hardships of 2013 and 2014.

The number of people employed in 2015 in the capital is now higher than in 2008. However, it will need additional time to reach the employment levels before the crisis, as the population of the district for the period increased by about 80 thousand.

Employment data for Plovdiv also remains positive, but only as far as the last quarter of the year is concerned, when the local labor market was able to compensate for job losses that occurred in the first half of the year.

Negative development

There is a somewhat surprising inverse relationship between the improvement of the situation on the labor market in the capital and deterioration in the neighboring districts of Pernik and Sofia. The number of people employed in Pernik bottomed at 49 thousand in the third quarter, while those in the Sofia district fell to 85 thousand in the second quarter of 2015. The labor market in both areas remains highly volatile.

Conclusion

The main threats to the continued recovery of the labor market are the rapidly slowing growth of economic activity, the lack of progress in regard to employment among young people and the stubbornly high number of discouraged people. On the one hand, because of the serious labor shortages that Bulgarian companies are experiencing, we can expect a slower recovery of the labor market in 2016. On the other - if the rate of increase in employment continues, in 2016 we can start talking not only about recovery, but about an expansion of the labor market - i.e. overtaking the pre-crisis employment levels.

The data for the first quarter of 2016 is extremely important, as it will show whether and to what extent the sharp increase in the minimum wage and minimum insurance thresholds has affected jobs in poorer areas of the country. This is an important point, because even in the midst of increasing employment on the national level, the exclusion of the poorer areas from this process poses challenges not only for the labor market, but also to the overall socio-economic development of these areas.

Martina Goranova*, Desislava Nikolova

Athough there are some inevitable economic divergences between Bulgaria’s districts, it would be interesting to check the assumption about the economic discrepancy between the labour markets of North and South Bulgaria. In order to reply to this question, we will compare three indicators that define the labour market - the unemployment rate, the employment rate, and the economic activity rate.

Regarding the unemployment rate, the difference between the weighted averages for Northern and Southern Bulgaria has narrowed to 2.85 percentage points in 2014 down from 8.58 pp back in 2000. That means the unemployment rate was generally higher in North Bulgaria both during the upturn untill 2008 and during the crisis period and the post-crisis recovery following 2009. It is interesting that the gap has considerably narrowed during the the past 15 years (about 3 times), which in principle could be interpreted as a decrease in the discrepancy between Northern and Southern Bulgaria in recent years, at least in terms of the unemployment rate.

If the capital city was disregarded, the better state of South Bulgaria would have been preserved, namely the average unemployment rate in South Bulgaria would have been 0.93 pp lower than the one in Northern Bulgaria in 2014. So, it turns out that Southern Bulgaria’s better indicators are not only due to the capital city—even without it, this part of Bulgaria would have performed better in terms of its labour market. Nonetheless, the capital city accounted for 2/3 of the difference between the unemployment rates in North and South Bulgaria as of 2014, i.e. its influence should not be underestimated.

The employment rate generally increased in Bulgaria from 2000 to 2008 and it grew again following a drop in 2009-2010.

In respect of the employment rate, the capital city’s influence has also been considerable. The discrepancy in the employment rate between Northern and Southern Bulgaria, excluding Sofia, would be almost double. The divergence between both parts was 5.81 pp in 2014, and if the capital city was disregarded, it would have been 2.95 pp. And still, as it is visible from the figures, the employment rate has been higher in South Bulgaria, notwithstanding the capital city’s influence. In 2014, this rate was 44.23% in North Bulgaria, and 50.05% in South Bulgaria.

It is notable that the difference between Northern and Southern Bulgaria in terms of employment rates has remained stable in time, fluctuating from 5 to 7 pp. Thus, if the data about the unemployment rate supported the assumption that North and South Bulgaria had developed more closely in recent years, then the data regarding actual employment would have firmly rejected it.

The labour market has gradually recovered in recent years, but the employment rate and the unemployment rate have not reached their pre-crisis levels. The differences between both parts of Bulgaria, in respect to employment, have not significantly changed in time, which constitutes another indicator of the insufficient effectiveness of the regional policy and the ongoing discrepancy between Northern and Southern Bulgaria. The interesting point is that Sofia (the capital city) is not the only “culprit” for South Bulgaria’s better rank — South Bulgaria has performed well even without Sofia, in respect of all basic labour market indicators. It should even be noted that role of Sofia (the capital city) concerning South Bulgaria’s advantage has gradually decreased. For instance, if the difference in the unemployment rates between North and South Bulgaria, excluding Sofia, was about 7 pp in 2000, it dropped to barely 1 pp in 2014. The same applies to the employment rate, even though the role of Sofia has slightly weakened—the difference between North and South Bulgaria, excluding Sofia, was 4.4 pp in 2000, and it decreased to about 3 pp in 2014.

* The author is an intern at the IME.

Yavor Aleksiev

The IME conducted 4 individual studies from April 2012 to April 2015 regarding the levels of local taxes and fees. For this purpose, every municipality received inquiries under the APIA during the spring of every year.

Five types of taxes and fees are included into the scope of the study:

• The Immovable property tax for legal entities (‰),
• The vehicle tax (commercial and passenger vehicles, 74 kW to 110 kW),
• The annual license tax for retailers (up to 100 sq. m of retail space – for most favourable location of the site) (BGN/sq. m),
• The annual waste collection charge for properties of legal entities (‰),
• The local tax on the transfer of property (‰).

General Comment

There have been no significant changes in the size of local taxes and fees in recent years. Changes regarding the annual license tax for retailers have been the most uncommon, and the most frequently atered fee is  the annual waste collection charge for properties of legal entities. With regard to the entire period 2013–2015, the waste collection charge was decreased more times (58) than it was increased (48).

We have observed 86 instances of decreases and 122 instances of increases of the local taxes and fees under consideration . Most probably the actual amendments (in both directions) have been more than the ones registered by our team, but provided there is no official database to enhance the analysis, we present to your attention the results of our study of the information gathered under the APIA.

Number of instances of increasing and decreasing local taxes and fees from 2013 to 2015

Source: IME on the basis of inquiries to municipalities under the APIA

It is notable that:

• The levels of local taxes and fees are largely a result of the availability, or the lack, of investments and functioning businesses. The levels of local taxes and fees remain relatively high in the biggest economic centres, and relatively low in the low developed ones.
• Neither high taxes and fees discourage investors from starting businesses, and the people from migrating to districts possessing relatively high tax burden, nor low taxes and fees manage to attract entrepreneurs and immigrants in the less developed districts.

It is clear that the factors defining any decision for starting a business, or migrating to a municipality/district, are rather related to the size of the local market, the quality of infrastructure, the availability of workers, job opportunities, the social environment, etc.

In other words, there is no observable tax competition between municipalities. This is not surprising in view of the fact that the main part of the tax burden, for any company, is actually towards the central government (via labor and corporate taxes, social security contributions and indirect taxation), and not to the municipalities. No matter how much a municipality tries to decrease the size of the taxes and fees collected by it, it is hard for it to achieve such an effect on the overall tax burden that is able to offset other flaws of the local investment environment (for instance, the small size of the local market, the remoteness of the region, or the poor infrastructural development of the district).

The proposal for granting more tax powers to municipalities, which was revoked several weeks ago (the ability to collect 2% income tax in addition to the already collected one) could theoretically spur tax competition, but it would also increase the overall tax burden on the economy.

Increasing the financial independence, accompanied by a territorial and administrative reform, constitutes a strategy whereby the depressed districts could regain their attractiveness for people and businesses. In order to achieve this, however, it is necessary that the financial decentralisation should not only be discussed, but it should be set forth within the clear framework of the current tax burden. The best method is to gradually grant an increasing share of the revenues that are already collected to municipalities untill achieving a degree of differentiation that would allow the more depressed districts to offer much better business conditions than the more developed ones.