Local Authorities Taxation Autonomy and its Role in Assessing the Financial Aspects of Decentralization

Fiscal decentralization necessitates the finding of solutions to a number of issues such as what amount of expenditure-related responsibility should be devolved to local authorities, what degree of taxation autonomy should local self-government organs be provided with, what fiscal tools should be used in order to offset the difference between local revenue and expenditure, etc. This paper shows that the various quantitative measurements used to establish the degree of decentralization (the share of local revenue/expenditure within the consolidated national revenue/expenditure statement or within GDP) are sometimes misleading with regard to the drawing of conclusions as to whether or not local authorities lack autonomy. It is emphasized that a proper indicator for assessing the financial aspects of decentralization is the degree of tax autonomy. The latter provides general information not only about the share and relative rank of local tax revenues in the total local income, but also about the power of local authorities to set tax rates and bases. A comparative analysis is made of Bulgaria and the countries of Central and Eastern Europe, as well as some EU countries, based on several indicators of the degree of decentralization and tax autonomy. Some general trends are identified as well as the reasons why Bulgaria is lagging behind with respect to certain indicators.