1. Fiscal Decentralization and Fiscal Federalism
Ind. David Slavata, Ph.D.

2. Decentralization of General Government
Central Government
Impact of its political power to all the country
State Government
(province, kanton, region, republic, prefecture)
The biggest geographical area, which the country is divided
Local Government
Its legislative and legal competences is limited by the smallest area for administrative and political purposes

3. The Decentralization Political Decentralization
It allows to citizens to participate on the public interest and to create public policies.
Administrative Decentralization
Transfer of responsibility from central governemnt to state or local governments for planning, financing and managing some of public function.
Fiscal Decentralization
It is distribution of finance between each levels of General Governemnt.
Transparent, predicable,
It is the right to gain its own revenues, it is the right to make expanditure decisions

4. Fiscal Federalism definition
Understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government (Oates).
It is the system which allows to different groups of entities in different states (federal states) to express different preferences regarding of public goods, which leads necessary to differences in the level of taxation and public services (Musgrave).

5. Fiscal federalism theories - historical view
First Generation Theory of Fiscal Federalism - 50´s and 60´s of 20th centuryThe politics are trying to maximalize the utility of their voters. The only function of public sector is to remove the market failures
Second Generation Theory of Fiscal Federalism
The politics and voters are trying to reach its own aims. The politics may not track only the welfare of voters.
The role of perfect awareness. The optimal decission are possible to make only under the condoition of perfect (symetric) information.
Present decentralization tendences
Democratization of society (entities in regions are more powerfull)
Globalization (decreasing dependance on Central governemnt due the globaliaztion)
Decentralization as superior good
Increase of inter regional diferencies

6. Theories as Basis of Decentralization
Location Theory
Tiebout´s model
Teory of clubs
Fiscal equivalence
Principal of Subsidiarity

7. Location Theory
Households who buy products have to add to their price also the transportation costs and the costs of waste of time.
Optimal size of local government to be effective should respect:
Transport cost
Demand for regional product
Population density
Economies of scale
Economies of scope

8. Tibout´s Model
The administrative units are in competition to provide optimal services and goods to its voters and it creates the optimal effectiveness.
Voters can change their place of residence at any time according to the size and structure of the public good.
Equilibrum is the situation when each individuals gain required level of public goods and changing of his residency does not help him to get better position.
The limits of the theory:
Voters must be mobile and change their residency in any time
Voters know the differencies between revenues and expanditures of each local governemnts
There are many of local governments among which voters can choose
All voters have the same income
There are no positive and negative externalities