MACROECONOMIC IMPACT OF DECENTRALIZATION

• Main Authors: Emilia Cornelia STOICA, Andrei Cristian STOICA
• Format: Article
• Language: English
• Published: Nicolae Titulescu University Publishing House 2014-05-01
• Series: Challenges of the Knowledge Society
• Subjects: decentralization; sub-national government; efficiency; impact; imbalances.
• Online Access: http://cks.univnt.ro/uploads/cks_2014_articles/index.php?dir=07_finance_accounting%2F&download=CKS+2014_finance_accounting_art.076.pdf

The concept of decentralization has a variety of expressions, but the meaning generally accepted refers to the transfer of authority and responsibility of the public functions from central government to sub-national public entities or even to the private sector. Decentralization process is complex, affecting many aspects of social and economic life and public management, and its design and implementation cover several stages, depending on the cyclical and structural developments of the country. From an economic perspective, decentralization is seen as a means of primary importance in terms of improving the effectiveness and efficiency of public services and macroeconomic stability due to the redistribution of public finances while in a much closer logic of the government policy objectives. But the decentralization process behaves as well some risks, because it involves the implementation of appropriate mechanisms for the establishment of income and expenditure programming at the subnational level, which, if is not correlated with macroeconomic policy imperatives can lead to major imbalances, both financially as in termes of economic and social life. Equally, ensuring the balance of the budget at the local level is imperative to fulfill, this goal imposing a legal framework and specific procedures to size transfers of public funds, targeted or untargeted. Also, public and local authorities have to adopt appropriate laws and regulations such that sub-national public entities can access loans - such as bank loans or debentures from domestic or external market - in terms of a strict monitoring national financial stability. In all aspects of decentralization - political, administrative, financial -, public authorities should develop and implement the most effective mechanisms to coordinate macroeconomic objectives and both sectoral and local interests and establish clear responsibilities - exclusive or shared - for all parties involved in the modernization process of the state.