Fiscal decentralization and local public investment policy in the Republic of Serbia

Abstract

This paper analyses the level of fiscal decentralization and structural characteristics of local public finances in Republic of Serbia with focus on local public investments. Share of central government expenditures in consolidated government spending of 83%, indicates relatively high degree of fiscal centralization. In spite of significant rise in local public revenues in the last decade public investments remained low - amounting to 1% of GDP, which is significantly below EU and Central and Eastern Europe average (1.4 and 1.5% GDP, respectively). Our results indicate large variation in relative size of public investments across LSGs. Most local public investments are focused on roads maintenance administrative infrastructure, while investments in environment and education are low. To tackle local disparities in terms of quality of local infrastructure and to foster economic convergence, development of planning and implementation capacities and introduction of systemic incentives for local public investments should be considered.