RISKS OF LOCAL FINANCIAL DECENTRALIZATION (AS EXEMPLIFIED BY KHARKIV MUNICIPAL BUDGET)
Abstract
The process of implementing financial decentralization is accompanied by factors that create risks for the socio-economic development of local governments and deprive them of the opportunity to fully realize their interests.
Cutting down on such risks requires the use of tools that can ensure the self-sufficiency of local communities in the performance of their own and delegated powers.
The purpose of the study is to determine the impact of financial decentralization instruments on the local budgets solvency (taking as an example the budget of the city of Kharkiv), as well as the existing risks of financial decentralization at the local level.
The analysis of the factors that act as risks to achieving financial independence and solvency of the local self-government shows that the application of budgetary and fiscal decentralization measures should be based on: a systemic approach that reflects the characteristics of a probable risk, an integrated approach that allows to assess endogenous and exogenous factors influencing local budgets, and the optimal choice of risk management tools that reduces the dependence of local budgets on risk factors and allows application of special regulatory actions at the state and local levels.
Given that the macroeconomic situation depends on changes in various external and internal factors, it is important to develop an effective algorithm for assessing future indicators, expert forecasting of budget planning, and the introduction of an extended risk management system.
In the context of the uncertainty of the external and internal environment, it is advisable to form a set of interrelated principles and economic means that will help identify, analyze and adjust the degree of risk to local budgets.
The development and implementation of measures to minimize the impact of risks on the local budgets are supposed to contribute to the formation of the local government’s financial self-sufficiency, while an effective application of the state regulation tools will provide financial autonomy at the local level and create conditions for socio-economic development.
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References
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On approval of the draft Main Directions of Budget Policy for 2018-2020: Order of the Cabinet of Ministers of Ukraine dated June 14, 2017. № 411-r. URL: https://www.kmu.gov.ua/npas/250079263.
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