Equilization framework for municipalities in Republic of Macedonia through grants
Equilization framework for municipalities in Republic of Macedonia through grants

Summary/Abstract: According to the analysis of inter-governmental system of transfers to municipalities in Macedonia came to the conclusion of the existence of "relative fiscal imbalance" for each municipality as well as transparent and impartial formulas for allocating funds for equalization among local governments in order to provide more resources to local governments with a lower capacity to higher taxation and expenditure needs, incentives for revenue mobilization by local governments.The current system of allocation of transfers to Macedonia to refer to this general idea of fair distribution of funds. Specifically, the proposed framework initiated formalized care that most funds are allocated to municipalities with a greater need for capacity charges and lower revenue. Considering that this formalization is a rather generalized framework, with its shifting parameters may come to very different distribution of grants, including the current allocation of revenues from VAT in Macedonia. The current allocation of revenue from VAT is equivalent to equalization fiscal disparities for all communities where it is assumed that they have capacity for tax revenues zero (0); this way fiscal imbalance is equal expenditure needs. This means that the current system does not correspond to differences in the capacity to collect revenue. We also know that the existing system effectively assess the needs of expenditure of the municipalities that use only financial norm "top-down" which covers all local costs except those financed through sectoral grants. Furthermore, the current system this unique financial norm effectively adjusted up (down) for municipalities that have more (less) land area per person and settlements. Simulations aim clearly show by the introduction effects of the proposed mechanism for transfer on local Finance to set up a framework of transparency, to show the potential winners and losers, and to indicate whether it would be necessary to establish a process of gradually introducing "for new methodology for transfer.

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