The fiscal consolidation and the fiscal decentralization: relationship problem and ways to solve it
Journal Title: Регіональна Економіка - Year 2016, Vol 80, Issue 2
Abstract
The fiscal consolidation is a set of measures of the government’s financial policy aimed at reducing public debt and budget deficit. The policy of fiscal consolidation in Ukraine should be aimed at keeping the public debt not exceeding 60% of GDP (according to the Maastricht criteria) in order to implement effective fiscal decentralization simultaneously. <br>The policy of decentralization in Ukraine should be based not on the political decentralization (it is a way to federalization), but on the fiscal decentralization. However, it is important to develop a mechanism for the latter, so that it does not contradict the fiscal consolidation. We see this relationship in financing of a part of the public debt and the military expenses from the regional budgets. <br>The fiscal decentralization means the measures of the state on the redirection of the state taxes and spending to the level of regions and municipalities. Meanwhile, there is the emphasis on increasing the financial resources of the amalgamated local communities in Ukraine, leaving aside the financial interests of regional communities, generating centrifugal tendencies in the past (especially – in the South and the East of Ukraine). <br>To enhance the financial capacity of the regions of our country, the part of the VAT is offered to be secured on this level. The criterion for this tax redistribution between the center and the regions should be the percent of the each region population in the population of Ukraine: the higher percent of the population is, the larger share of the VAT a region should give to the budget. This share should be defined by the Parliament and the Government of Ukraine while preparing the draft state budget of the country, at the same time they should identify the list of additional expenses of the regions, including the repayment of public debt and military expenses (in proportion to the percent of population of the region in the population of our country). <br>Profit tax should be divided between the center and the regions at a ratio of 50% to 50%, while expanding the regional expenditure responsibilities, including the repayment of the part of the state debt of Ukraine and its military spending. <br>This approach to the implementation of public spending to pay for public debt and military spending (fiscal consolidation) and expansion the tax capabilities of the regions (fiscal decentralization) will allow putting the state revenues and expenditures under the strict control of local communities, thus reducing the centrifugal tendencies in Ukraine.
Authors and Affiliations
Mykola I. Karlin
Keywords
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