The impact of the economic crisis and obstacles to investments at local level

Abstract

The global economic crisis had a significant impact on the fiscal stance of local government units. The literature discusses this issue by explaining that financial crises change budget decisions of central state authorities towards the financing of those priorities which could improve the economic situation at national level. The impact of the change in national government’s decisions influences local government units differently depending on the level of their fiscal autonomy. Investments at the local level are below pre-crisis levels in most European Union countries. This article analyzes the impact of the financial crisis on the fiscal imbalance showing that there is a lack of financial resources for investments. Due to fiscal constraints and annual borrowing limits of regional and local public administration authorities, the affordability of projects and investments is limited. Furthermore, the article analyzes the obstacles to investments at local level in Croatia, a country belonging to the group of European Union Member States which was hit hardest by the crisis and experienced a larger drop in investments. The results of the survey conducted among members of regional assemblies have been analyzed with respect to the level of local development and other factors enabling to identify more precisely the obstacles to investment.