Local Fiscal Capacity in the New Members of the European Union: Is It Efficient?

Purpose – This paper aims to analyze the efficiency of the fiscal capacity of the local governments in the new members of the EU. Design/methodology/approach – The impact of the locally collected taxes on economic growth is analyzed by the means of regression analysis. The GDP growth rate is adopted as a dependent variable in the model and its deviations are explained via tax instruments for building fiscal capacity. Findings – Strong positive effects on economy, when property taxes come in local budgets. Research limitations/implications – There are many factors affecting the economic growth, which are not included in the regression model. The effects of the charges levied by local governments also remain without estimation. Originality/Value – The study fills in the gap of research on the benefits of local fiscal capacity in the countries of interest.