Modernization of financial relations between public central and local authorities

Author:Emilia Cornelia Stoica - Andrei Cristian Stoica
Position:Nicolae Titulescu University, Bucarest - Public Finance Ministry, Bucarest
Steliana Sandu • Irina Anghel
Emilia Cornelia STOICA*
Andrei Cristian STOICA**
Financial relations improvement between public central authorities and public local
authorities represents, at the same time, a need for the modernize the state administration and a
challenge for the policy makers. In this respect, many governments successfully applied performed
structurals reforms, from their experiences we can highlight some principles and good practices
which can be used to rise the performance of the public financial management.These principles
and good practices refer to some aspects that deep the devolution, such as:
- emphasizing the public local authorities responsibilities regarding public expenditures;
- improvement local taxation and other own local revenues;
- better enforcement central – local grants mechanisms;
- rising indebtedness capacity, including local public entities repayment capacity.
Among the improvement solutions to finance devoluted public services, financial grants
from central budgets and funds to local budgets have multiples forms, which present both
advantages and disadvantages, depending on economic and social conjuncture and keeping in
mind the needs of transparency in public administration.
Keywords: devolution, taxation, equilibrum, grant, indebtedness
Achieving the economic development of a locality or region is a complex undertaking,
insofar as it is subject to the influence of factors beyond local, regional or national have no control.
The tools available to finance local development vary significantly from one jurisdiction to
another, even when they are designed for similar purposes. There are significant differences
between States as to how public funds are collected and distributed to local goverments - that is to
say regarding the amount of taxes collected or spent at the local level and the extent to which local
communities are dependent on transfers from higher levels of government.
The countries where the tax burden is higher tend to rely on public funding to support
economic development efforts made under the government management, while countries where
taxes are lower tend to assume that the private sector more involved in economic development.
Where local governments depend heavily on local taxes to fund their budgets, they are more
likely to consider the local economic development as a means of broadening their tax base to
finance services, asset and local amenities.
When the local government budget is supplied largely by the national administration, they
are more likely to see local economic development a remedy for social and spatial disparities. This
type of local development is often focused more on the activities of public and social sector - to
* Nicolae Titulescu University, Bucarest,
** Public Finance Ministry, Bucarest,

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