| Summary: | Purpose of the research is to formulate proposals for improving the local financial system by
strengthening/enhancing the relationship between local revenues and expenditures and the economic development of the municipality. The study uses large data sets for economic development at municipal level, financial data for municipal budgets and comparative data on local finances in the European countries. The Results show the stronger connection between local revenues and expenditures and the economic development of the municipality is, the more local problems will be solved at a local level, whereas the population will be aware of the cost of local services, and local government will depend on its taxpayers, will be guided and controlled by them, i.e. business and living conditions for the local population will be improved. Мain inferences from the analysis are drawn and recommendations for changes in the local financial system are justified.
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