Trends and Determinants of Municipal Fiscal Disparities in Bulgaria

Abstract

The purpose of this paper is to examine the trends of municipal fiscal disparities in Bulgaria and to analyze the causes of the existing inequalities. One of the most challenging issues of fiscal decentralization process is the choice of proper policy response to the existing fiscal disparities among local governments. The identification of fiscal inequalities at local level and its determinants is a starting point in developing an equalizing mechanism that has a potential to reduce these inequalities. Hence, with this study we aim to contribute to a better understanding about horizontal fiscal imbalance in Bulgaria. Municipal fiscal disparities are measured in terms of differences in municipal own revenue, i.e. local tax revenue, user fees and charges, and other non-tax revenue. The analysis of horizontal fiscal imbalance covers the period 2007-2018 and uses several statistics measures to yield a complete picture of the trend of municipal fiscal disparities. The main findings suggest that disparities among municipalities in terms of own-source revenue were smaller at the end of the period than those at the beginning of the period as measured by the maximum-to-minimum ratio and the coefficient of variation. Regardless, municipal fiscal disparities are still considerable with very few rich municipalities which level of own-source revenue per capita is in sharp contrast to the rest of the municipalities.