Fiscal capacity of Slovene municipalities




1.11.2019 - 30.1.2021

Head: Vladimir Prebilič

Research activity:

Social sciences

Research Organisation:


Citations for bibliographic records:


Economic globalization, increasingly differentiated and unstable markets and the financial crisis are elements of the uncertain future for local communities. Thus local communities ought to appropriately respond to these growing challenges. Due to the pressures of the citizens which demand quality of public services on one hand and the institutional frameworks set by the national government on the other, local communities cannot only passively execute its basic functions. Regardless, local communities in order to carry out their tasks require a material basis, which guarantees the necessary capacity, autonomy and independence. Respectively, fiscal decentralization and the financial autonomy of local communities are vital. Within the relationship between the state and local communities, we adopt the principle of vertical tax equalization, which represents the proportionality between the obligations for the tasks transferred to the local level and the allocated resources and horizontal equalization, which presupposes the proportional distribution of resources among local government units. An optimal system that would ensure an adequate ratio between revenues and cost of carrying out tasks in all local communities is merely an ideal, therefore in practice there are divergences between these categories. The solution of these inequalities could be addressed through (implementing) fiscal autonomy, which aims to allocate adequate financial resources to local communities, which local communities can determine (at least in part) according to their needs and public policies (development strategies). The purpose of allocating jurisdiction over local tax resources is to ensure that local authorities are motivated to exploit their own potentials according to the needs of the local community. In this context, the question on the implementation of appropriate taxes that can be allocated to local communities appears. In principle, they should meet the following criteria: the stability in the tax base, the tax base should be evenly distributed within the jurisdiction, taxes should be clear and identifiable to people, the subject of taxation is tangible and based on the principle of benefit wherever possible, stable and sufficient to cover the needs of the local community (Arora and Norrregaard, 1997: 8). In addition to the autonomy of implementing their own taxes, an important aspect is the possibility for local communities to, in accordance to legislation, determine the benefits and tariffs of local services, which allow them to change the amount of financial inflows and link the financial burden according to the strategic orientation of the local community.   Fiscal decentralization is therefore not under question, as it is also envisaged by the European Charter of Local Self-Government. The question is what kind of fiscal decentralization system is optimal. Or how to move the existing system to a point where municipalities would be financially more autonomous, since Slovenia, according to the Local Autonomy  Index (Ladner, Keuffer, and Baldersheim, 2015) is at the edge of European countries, concerning the fiscal autonomy of municipalities. Since there are several possibilities and models of optimization, it is crucial that a detailed analysis of the actual fiscal autonomy of municipalities is made, and a detailed calculation of all revenue accounts, comparable between the years and comparative between municipalities, before the possible modification or optimization of the system of financing of municipalities. The Article 6 of the Municipal Financing Act lists the tax and non-tax sources of municipalities, but there are different sources within these categories, which also have a different legislative basis. Since most of these resources in relative terms are relatively small (representing a small share of own municipal revenues), they are not getting much attention, unlike to the largest source - Compensation for the use of building land.

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