Demographic and Socio-Economic Determinants of Local Financial Autonomy in Romania

Abstract

Local autonomy is a rarely explored concept in the literature, still holding an increasing importance in the current context of Romania’s development in the European Union. In this paper we attempt to provide an overall survey on the financial dimension of local autonomy, assuming that local autonomy cannot be implemented, unless local authorities have adequate financial resources. In this study we also analyze the possibility to measure the local revenue autonomy and to identify the variables which represent the determinants of the local revenue autonomy. Using empirical evidence from Romanian counties, we analyze the regional distributions for own revenues and for the significant determinants of local revenue autonomy. By means of econometric modeling we will highlight the variables which are statistically significant and explain the variation of the local revenues of Romanian counties, as well as the order of importance of the determinants of local financial autonomy. The empirical results show us that, although, theoretically, the counties have a great administrative and financial autonomy, practically this autonomy is very reduced (an average of under 40% for local revenue). The modeling results show that the degree of local financial autonomy can be increased by increasing economic development, urbanization, the average living area per person and fertility. Unemployment and a high level of demographic dependency contribute to the decrease of local financial autonomy.

Keywords

• local autonomy
• financial autonomy
• demographic and socio-economic determinants
• econometric model.