Deepening Fiscal Decentralization as a Path to Fiscal Responsibility? A Comparison of the Czech Republic and Turkey

Abstract

Abstract The article deals with the issue of fiscal decentralization in relation to compliance with fiscal discipline at the municipal level. The article evaluates the situation of selected Czech and Turkish cities. In the case of Czech cities, so-called statutory cities were selected, which, due to their size and budget, have a certain independence from the central government. In the case of Turkish cities, the largest ones were analyzed, which also have a high degree of autonomy due to their size. The unifying element of both samples is approximately similar financing conditions. In both cases, shared taxes are used, but they are in the hands of the central government, and the municipalities have no possibility to influence them. In the case of municipalities, they can receive subsidies from the central government. From the perspective of fiscal responsibility management, relations with the central government appear to be a stabilizing element. However, at the same time, strengthening revenues associated with local government could also support fiscal discipline. In particular, this possibility would be significant in the case of smaller municipalities when the share of local income in total income is increasing. Another option for discussion is the availability of debt financial instruments. In the case of Turkish cities, fiscal discipline is significantly correlated with external debt. Although Czech municipalities can easily access debt financial instruments, they cannot use foreign financing. JEL Classification: C33, C35, H71, H72, H77