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Local Fiscal Equalization in Estonia: Is a Reform Necessary?

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  • Peter Friedrich
  • Chang Woon Nam
  • Janno Reiljan

Abstract

Estonian municipalities should perform a broad range of functions, while their fiscal resources are often limited and large disparities in fiscal capacity prevail among them. Moreover, the power to regulate fiscal affairs is mostly in the hands of the central government. We discuss how a strict application of the connexity principle can protect municipalities from the fiscal bottleneck. We also recommend the introduction of the principle of parallelism and investigate its effects on the unconditional, down-flow grant system in Estonia. In particular the procedure of determining the total sum of block grants appears to be changed.

Suggested Citation

  • Peter Friedrich & Chang Woon Nam & Janno Reiljan, 2009. "Local Fiscal Equalization in Estonia: Is a Reform Necessary?," CESifo Working Paper Series 2800, CESifo.
    • Handle: RePEc:ces:ceswps:_2800
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    References listed on IDEAS

    as
    1. de Mello, Luiz Jr, 2000. "Fiscal Decentralization and Intergovernmental Fiscal Relations: A Cross-Country Analysis," World Development, Elsevier, vol. 28(2), pages 365-380, February.
    2. Peter Friedrich & Janno Reiljan, 2010. "Strategies In The Fiscal Reform Of Estonian General Education," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 73, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    3. Chang Woon Nam & Rüdiger Parsche & Matthias Steinherr, 2001. "The Principles of Parallel Development of Fiscal Capacity between State and Municipalities as Useful Benchmarks for the Determination of the Inter-governmental Grants in Germany," European Planning Studies, Taylor & Francis Journals, vol. 9(4), pages 525-537, June.
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    More about this item

    Keywords

    fiscal equalization; municipal finance; connexity; principles of parallelism; Estonia;
    All these keywords.

    JEL classification:

    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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