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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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  • Juan Luís Gómez & Jorge Martinez-Vazquez & Cristian Sepúlveda, 2007. "Equalization Transfers in Romania: Current System and Proposals for Reform," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0701, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper0701
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    1. Robin Boadway, 2004. "The Theory and Practice of Equalization," CESifo Economic Studies, CESifo Group, vol. 50(1), pages 211-254.
    2. Richard M Bird & Andrey V Tarasov, 2004. "Closing the Gap: Fiscal Imbalances and Intergovernmental Transfers in Developed Federations," Environment and Planning C, , vol. 22(1), pages 77-102, February.
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    1. Dănule iu Dan Constantin & Mutaşcu Mihai Ioan & Enache Cosmin, 2007. "An Assessment Of The Financing System Of Local Communities In Romania," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(9), pages 1-21.

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