Regional Development and Decentralization – two Options to Overcome Lack of Funding

Abstract

Decentralization can be generally described as a process in which selected functions are assigned to sub-national units. The literature identifies a number of positive consequences of decentralization which all lead to a better satisfaction of citizens’ needs for public services. Although the decentralization process in Croatia started more than ten years ago, it has not yet been completed. While leading to a new allocation of authorities and responsibilities to local government units, the level of fiscal decentralization remained lower than in the EU countries.In this paper we analyze the fiscal capacity of local government units to provide an insight into the main problems of decentralization in Croatia. We show that most local government units have very low fiscal capacity, which is insufficient for financing basic public functions with their own resources. The paper presents the results of a survey relating to the decentralization process conducted among local councilors at the regional level in Croatia. We explore how local councilors at the regional level evaluate different goals of decentralization. With the lack of fiscal capacity in mind, we identify two possible solutions for an optimal provision of public functions. The first one is the level of political will for a joint provision of public functions by different local units, and the second one is a change in the territorial organization of the country. We measure the difference in the attitudes toward these questions across counties.

Keywords

• decentralization, fiscal capacity, regional development, local units, croatia