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Equalization Transfers in Romania: Current System and Proposals for Reform

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Abstract

Romania has been actively reforming its intergovernmental transfer system during the last years. The new Law on Local Public Finance, which will come into force in January 2007, will involve substantial modifications both to the institutional arrangements and to the formula employed to distribute equalization funds across counties and communes. As with the former transfer mechanism, the new system is characterized by a high level of complexity and an emphasis on within-county equalization of communes instead of a more desirable nationwide approach. Overall, we argue that the equalization potential of the reformed 2007 system does not improve in any significant way over its predecessor. This report outlines the principles that should shape an efficient equalization transfer system and provides five proposals for reform based the concept of fiscal disparity and a bifurcated distribution scheme. The proposals represent feasible alternatives to improve the equalization potential of the system in place, as shown by the simulation analysis on each of the alternative transfer systems. The paper concludes offering a critical path to reform the Romanian transfer system.

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File URL: http://icepp.gsu.edu/sites/default/files/documents/icepp/wp/ispwp0701.pdf
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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0701.

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Length: 93 pages
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:ays:ispwps:paper0701

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Keywords: Romania; Equalization Transfers; reform;

This paper has been announced in the following NEP Reports:

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  1. Robin Boadway, 2003. "The Theory and Practice of Equalization," Working Papers 1016, Queen's University, Department of Economics.
  2. Richard Bird & Andrey Tarasov, 2002. "Closing the Gap: Fiscal Imbalaces and Intergovernmental Transfers in Developed Federations," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0202, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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