Local Fiscal Equalization in Estonia: Is a Reform Necessary?

Peter Friedrich (), Chang Woon Nam and Janno Reiljan ()

No CESifo Working Paper No. 2800, CESifo Working Paper Series from CESifo Group Munich

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.

Keywords: fiscal equalization; municipal finance; connexity; principles of parallelism; Estonia (search for similar items in EconPapers)
JEL-codes: H27 H70 H77 R10 (search for similar items in EconPapers)
Date: 2009
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