Formal dimension of fiscal decentralization in the context of vertical fiscal imbalance and financial autonomy of municipalities in Slovakia

Abstract

An increase in municipal financial autonomy in Slovakia in connection with the fiscal decentralization during the monitored period 2000–2016 is observable after its implementation (2005) with a certain derogation in the period of the financial crisis (2009). The aim of the paper is to point out its formal increase through vertical fiscal imbalance. It is caused by the dominant position of shared tax revenues in the municipal budgets. Dumitrescu-Hurlin Panel Granger Causality test confirms a relationship between municipal financial autonomy and vertical fiscal imbalance, which points to a transfer dependency of municipalities on central government. Using the cross-correlation, the expected inverse relation between analysed categories is confirmed in the current period. Statistically significant positive correlation coefficients in the case of lag order point to important timing focusing on the period of implementation of reforms and certain economic effects, e.g., financial crisis and economic recovery.