The new territorial reform and the need to revise the intergovernmental fiscal transfers

Fran BRAHIMI, Prof. Ass. Dr, Elton STAFA, MSc & Mariel FRROKU, MSc

Abstract While developed countries continue to deepen responsibility devolution, developing countries strive to increase local autonomy, challenging therefore centralized decision making monopoly. Intergovernmental transfers and largely unconditional grants constitute a major source of financing for local governments. In Albania, historically, unconditional grants counted for about 70% of total own revenues for half of local governments units. Such grants have been allocated through a formula, based on sound criteria of objectivity, transparency and predictability. The reality brought by the territorial and administrative reform imposes a revision of the current system of intergovernmental fiscal relations and the unconditional grants formula in particular. Nevertheless, the revised formula should maintain and develop those criteria and elements that have been positive during the its’ implementation time. And, of course this scheme needs to be synchronized with; a) the size of the unconditional transfer, b) allocation criteria, including fiscal equalization c) the devolution of new functions to local governments etc.
Key words decentralization reform, fiscal decentralization
JEL classification H72; H61; R51