Municipal Revenue Determinants in the South-Eastern European Economy: Evidence from North Macedonia

• Authors: Trenovski Borce , Merdzan Gunter , Peovski Filip
• Languages of publication: EN

Abstracts

EN

Sustainability of municipal finance implies steady revenue generation. Pinpointing their determinants creates the necessary background in their management and policy creation. Great municipal dependence on central government finance remains a serious challenge in the process of fiscal decentralisation. So far, studies have been focusing on the expenditure side, while revenues were treated mostly marginally. A random-effects Generalized Least Squares (GLS) panel regression for the period of 2015–2019 is estimated for targeting revenue determinants of municipalities in North Macedonia. Own and total tax revenues are modelled separately through the impact of capital expenditures, salary expenditures, active transparency index, municipality type, and local government’s ideology. The general results indicate that capital expenditure, municipal transparency, and the level of development are significant determinants of municipal revenues in both estimated models. Using such knowledge on municipal revenue reactions can help governments formulate policies that provide sustainable and effective fiscal decentralisation, lowering the pressure on central governments in developing economies.

Keywords

EN

revenue determinants; local finances; fiscal decentralisation; North Macedonia

• Publisher: University of Warsaw - Centre for European Regional and Local Studies (EUROREG) and Regional Studies Association - Polish Section
• Journal: Studia Regionalne i Lokalne
• Year: 2022
• Issue: 1(87)
• Pages: 22-36

Contributors

author

Trenovski Borce

• Ss. Cyril and Methodius University in Skopje, Faculty of Economics

author

Merdzan Gunter

• Ss. Cyril and Methodius University in Skopje, Faculty of Economics

author

Peovski Filip

• Ss. Cyril and Methodius University in Skopje, Faculty of Economics

References

• Bahl, R., 1999, “Implementation Rules for Fiscal Decentralisation”, International Studies Program, Working Paper 99–1. Available at: https://icepp.gsu.edu/files/2015/03/ispwp9901.pdf.
• Bartlett, Đ., and Sanja, K., 2020, “The Impact of Fiscal Decentralisation on Local Economic Development in Serbia”, Lex Localis – Journal of Local Self-Government, 18(1), 143–163. doi.org/10.4335/18.1.143- 163 (2020).
• Bird, R. M., 1993, “Threading the Fiscal Labyrinth: Some Issues on Fiscal Decentralisation”, National Tax Journal, 46(2), 207–227. doi: 10.1086/NTJ41789011.
• Blom-Hansen, M., and Sorensen, R., 2006, “Do parties matter for local revenue policies? A comparison of Denmark and Norway”, European Journal of Political Research, 45(3), 445–465. doi.org/10.1111/j.1475-6765.2006.00305.x.
• Brooks, Ch., 2014, Introductory Econometrics for Finance, Cambridge: Cambridge University Press.
• Buchanan, J. M., 1950, “Federalism and Fiscal Equity”, The American Economic, 40(4), 583–599. doi: 10.2307/1808426.
• Centre for Civil Communications, 2016, Active Transparency Index, Skopje: Datapons Skopje. Available at: https://civicamobilitas.mk/wp-content/uploads/2018/03/index_aktivna_2016_final.pdf.
• Centre for Civil Communications, 2017, Active Transparency Index, Skopje: Datapons Skopje. Available at: https://civicamobilitas.mk/wp-content/uploads/2018/03/ia2017m.pdf.
• Centre for Civil Communications, 2018, Active Transparency Index, Skopje: Datapons Skopje. Available at: https://www.dropbox.com/s/s9bc17dv3jebr32/Aktivna%202018%20za%20web.pdf?dl=0.
• Centre for Civil Communications, 2019, Active Transparency Index, Skopje: Datapons Skopje. Availale at: https://www.opendata.mk/Storage/Indeks%20na%20aktivna%20transparentnost%202019.pdf.
• Dash, B. B., and Raja, A. V., 2014, “Do political determinants affect revenue collection? Evidence from the Indian states”, International Review of Economics, 61(3), 253–278. doi.org/10.1007/s12232-014-0210-z.
• Furniss, N., 1974, “The Practical Significance of Decentralisation”, The Journal of Politics, 36(4), 958–982. doi.org/10.2307/2129402.
• Hadiyan, H., and Ni K. Surasni. 2017, “Determinants of Local Tax Revenue and its Implication to Local Financial Independence”, International Conference and Call for Papers, ‘Good Corporate Governance to Face Global Business Competition’, Jember. Available at: http://jurnal.stie-mandala.ac.id/index.php/eproceeding/article/view/158.
• Hammond, G. W., and Tosun, M. S., 2011, “The Impact of Local Decentralisation on Economic Growth: Evidence from U.S. Counties”, Journal of Regional Science, 51(1), 47–64. doi.org/10.1111/j.1467-9787.2010.00683.x.
• Hausman, J. A., 1978, “Specification Tests in Econometrics”, Econometrica, 46(6), 1251–1271. doi. org/10.1108/JPBAFM-08-01-1996-B003.
• Kroth, V., 2012, “Subnational budget transparency: An analysis of ten pilot studies”, International Budget Partnership. Available at: https://www.internationalbudget.org/wp-content/uploads/Subnational- Synthesis-Paper_final.pdf
• Luo, H., and Douglas, J. W., 1996, “Revenue effort of local governments: Determinants, impacts, and policy implications”, Journal of Public Budgeting, Accounting & Financial Management, 8(1), 47–68. doi.org/10.1108/JPBAFM-08-01-1996-B003.
• Maličká, H., and Gazda, V., 2012, “Determinants of Local Tax Revenues in EU Countries”, European Journal of Economics, Finance and Administrative Sciences, 52, 120–126.
• Martinez-Vazquez, J. et al., 2016, “The Impact of Fiscal Decentralisation: A Survey”, Journal of Economic Survey, 31(4), 1095–1112. doi.org/10.1111/joes.12182.
• Ministry of Finance of the Republic of North Macedonia, 2009, Rulebook on Classification of Expenditures, No. 07-20647/1. Accessed March 31, 2021, at: https://arhiva.finance.gov.mk/files/u6/Pravilnik_za_klasifikacija_na_rashodite.pdf.
• Moldovan, O., 2016, “Local revenue mobilization in Romania”, European Financial and Accounting Journal, 11(3), 107–124. doi.org/10.18267/j.efaj.166.
• Musgrave, R. M., 1959, The Theory of Public Finance, New York: McGraw-Hill.
• Nelson, A. C., and Foster, K. A., 1999, “Metropolitan Governance Structure and Economic Growth”, Journal of Urban Affairs, 21, 309–324.
• Oates, W. E., 1993, “Fiscal Decentralisation and Economic Development”, National Tax Journal, 46(2), 237–243. doi: 10.2307/41789013.
• Oates, W. E., 1999, “An Essay on Fiscal Federalism”, Journal of Economic Literature, 37(3), 1120–1149. doi: 10.2307/2564874.
• Overton, M., and Bland, R., 2017, “Exploring the Linkage between Economic Base, Revenue Growth, and Revenue Stability”, Lincoln Institute of Land Policy, Working Paper WP17MO1. Available at: https://www.lincolninst.edu/sites/default/files/pubfiles/overton_wp17mo1.pdf.
• Santis, S., 2020, “The Demographic and Economic Determinants of Financial Sustainability: An Analysis of Italian Local Governments”, Sustainability, 12(18), 7599. doi.org/10.3390/su12187599.
• Sedmihradská, L., and Čabla, A., 2013, “Budget accuracy in Czech municipalities and the determinants of tax revenue forecasting errors”, Ekonomická revue – Central European Review of Economic Issues, 16(4), 197–206. doi.org/10.7327/cerei.2013.12.01.
• Tiebout, Ch. M., 1956, “A Pure Theory of Local Expenditures”, Journal of Political Economy, 64(5), 416–424. doi.org/10.1086/257839.
• Tran, D., and Masayoshi N., 2018, “The Role of Revenue Volatility in Local Expenditure Volatility: A Comparison of Tokyo Metropolitan Local Governments”, Economic Papers: A Journal of Applied Economics and Policy, 9, 1–13. doi.org/10.1111/1759-3441.12228