Financial Transfers to Local Areas in Central Government Policy
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Publication date: 2007-04-30
GNPJE 2007;215(4):71-89
The paper deals with selected aspects of the issue of financial transfers to local governments from the central budget. The first part of the paper describes the basic types of transfers, their role and limitations in central government financial policy resulting from decentralization. Further on, the author discusses the conditions of subsidizing and co-financing local governments under fiscal and budgetary policies. Guziejewska also examines the rules and purposes of financial policy, including the policy of subsidizing, sources of local government revenue and the role of soft and hard budget constraints. The author uses a descriptive analysis method, combined with elements of deduction and statistical analysis. The analysis confirms that the importance of transfers to local governments depends on the level of decentralization of public finances, the detailed structure of individual transfers and the roles that they are supposed to play in the financial system of the state. In Poland, general- and specific-purpose subsidies as well as designated grants play a key role in transfers from the national budget to local areas. Transfers to municipalities differ from those intended for other local government units above the municipality level. The Polish financial transfer system places insufficient emphasis on the goals that individual transfers are supposed to serve, Guziejewska concludes. The system also overlooks the actual costs of services in local areas and makes limited use of the principle of co-financing. Moreover, the economic and social consequences of specific transfers and their political role are not always sufficiently analyzed.
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