Local governments’ right to raise and manage own finances

Local governments can raise funds in their own name

Review of legislation whether the law grants local governments the right to raise funds in their own name.

Local governments can set and/or modify the rate of a major tax. Range established by the law may apply

Review of legislation to check whether the law grants the right to local governments to set and/or modify the rate of a major tax. Such taxes mostly include personal income tax, property tax, corporate tax, etc. When assessing this criterion, it is important to note, that fiscal autonomy to be meaningful, has to concern meaningful revenues. Allowing maximum score in case of autonomy to regulate very small revenues (e. g. tax on pets) would not in reality express autonomy of local governments. Therefore, to assess this criteria, regulatory power over taxes that bring over 0.5% of GDP receive more points, than others. The reference to “major tax” is therefore defined by referring to a GDP percentage.

Revenue ratio - share of local governments’ own revenues compared to the total government revenues (%)

Percentage of the local own revenues (e.g., from taxes and fees) compared to the total government revenues. A higher percentage or 'importance' of the locally raised revenues would indicate a higher degree of decentralisation. Points are allocated based on the percentage of own subnational revenues withing the total government revenues (x): • x < 5% = 0 points. • 5% ≤ x < 30% = linear function. • x ≥ 30% = 10 points.

Revenue autonomy - share of local governments' own revenues compared to all local revenues (%)

Review of fiscal data to check the percentage of own revenues of local governments compared to all local revenues, including transfers (grants) from the state administration. Local governments’ own financial resources should account for part of local government revenues (in comparison with state subsidies). Higher reliance on locally raised revenue would indicate a higher degree of fiscal decentralisation. Points are allocated based on the percentage of local governments’ own revenues compared to all local revenues (x): • x < 10% = 0 points. • 10% ≤ x < 50% = linear function. • x ≥ 50% = 8 points.