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Fragmentation and Vertical Fiscal Imbalances Lessons from Moldova

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  • Serhan Cevik

Abstract

Using a novel municipality-level panel dataset, this paper investigates the empirical characteristics of vertical fiscal imbalances (VFIs) in Moldova over the period 2005–13. The results show that the extent of variation in VFIs across 898 municipalities can be explained by the level of per capita income, fiscal capacity, and demographic characteristics, as well as the central government’s fiscal behavior that reflects fiscal constraints and policy preferences at the national level. Political affiliation does not appear to be a significant factor, and the results are inconclusive in terms of direction. While some model specifications show larger VFIs when the mayor of a municipality belongs to the same party ruling the central government, other models suggest better coordination and thus lower VFIs. Altogether, these findings underscore the need for well-coordinated reforms to create economies of scale, enhance revenue collection, and improve the composition of spending at the subnational level.

Suggested Citation

  • Serhan Cevik, 2014. "Fragmentation and Vertical Fiscal Imbalances Lessons from Moldova," IMF Working Papers 14/233, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/233
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    More about this item

    Keywords

    Econometric models; Fiscal decentralization; Moldova; Government expenditures; Public finance; Panel analysis; Vertical fiscal imbalances; Time series; Vertical fiscal imbalance; subnational governments; revenues; decentralization; subnational; central government; Structure and Scope of Government; Deficit; General; State and Local Taxation; Subsidies; and Revenue; State and Local Budget and Expenditures;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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