The subject of the article is the theoretical basis of the national economy institutional modernization. Paper considers the essence of fiscal decentralization. Author discusses the fiscal federalism theory and practice; determines basic principles of inter-budgetary relations: fiscal equivalence, fiscal solidarity and subsidiarity; generalizes the provision of public goods theory concerning principles and criteria for the optimal allocation of powers of central and local authorities. Paper suggests cited pros and cons arguments for fiscal decentralization.
Author describes economic criteria for the distribution of power and resources between the levels of government and public goods; detects features of financing the public sector at the local level; characterized institutional asymmetry phenomenon in the area of public goods production and consumption. Paper raises the problem of interest groups conflict; reveals the role of local communities in the use of local finance for the public goods production; shows trends and opportunities to optimize the financing of the public sector at the local level.
Author indicates relationship of economic democratization, development of civil society institutions and strengthening of the state’s responsibility as well as talks about implementation of social welfare and sustainable development as the defining matter of the priority of public finance and public administration reforming.
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