What is it about?
This paper investigates the empirical characteristics of vertical fiscal imbalances (VFIs), using a novel municipality-level panel dataset from Moldova covering the period 2005–2013.
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Why is it important?
The results show that the extent of variation in VFIs across 898 municipalities can be explained by the level of per capita income, fiscal capacity, and demographic characteristics, as well as the central government’s fiscal behavior that reflects fiscal constraints and policy preferences at the national level. Political affiliation does not appear to be a significant factor, but the results show lower VFIs when the mayor of a municipality belongs to the same party ruling the central government.
Perspectives
Altogether, these findings underscore the need for well-coordinated reforms to create economies of scale, enhance revenue collection, and improve the composition of spending at the subnational level.
Serhan Cevik
International Monetary Fund
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This page is a summary of: Size matters: fragmentation and vertical fiscal imbalances in Moldova, Empirica, March 2016, Springer Science + Business Media,
DOI: 10.1007/s10663-016-9325-7.
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