Financial self-sufficiency of Ukrainian territorial communities and local economic development: Modeling the causal relationship

Abstract

The financial self-sufficiency of communities determines their ability to create additional jobs, attract investment resources, offer quality social services, and improve the population’s living standards and well-being. The study aims to identify the casual relationships between financial self-sufficiency and local economic development of Ukrainian territorial communities during economic instability. The paper used integrated assessment based on a spatial approach (identifying the level of local economic development), indicative method (calculating empirical values of financial self-sufficiency of communities), VEC model (analyzing the sensitivity of local economic development to changes in financial self-sufficiency), balanced multi-component regression method (modeling the relationship between local economic development and financial self-sufficiency). Data were gathered on all territorial communities of Ukraine in 2021. The results show that the highest level of local economic development was observed in Dnipropetrovsk oblast (empirical coefficient equal to 0.855), high levels in Kharkiv, Zaporizhzhia, Odesa, Kyiv, and Poltava oblasts (0.787; 0.687; 0.684; 0.663 each, respectively), and moderate levels in Zakarpattia (0.448) and Kirovohrad (0.433) oblasts. With increased financial self-sufficiency, local economic development can exceed 2%; a 1% increase in the decentralization of tax revenues and expenditures simultaneously leads to an increase in the attractiveness of the investment climate as an indicator of local economic development (2.3-6.6%). The study proves that the territorial communities of the regions characterized by a low level of local economic development demonstrated higher values of decentralization of interbudgetary revenues than those with higher values of local economic development.