Assessment of Fiscal Decentralization Influence on Social and Economic Development

Transformation of the mechanism of responsibility redistribution between central and sub-central government resulted in expansion of fiscal decentralization (FD) ideas. The concept of fiscal decentralization in general features was formed at the second half of XX century, however, key ideas appeared far more earlier. Nevertheless, many controversial empirical research results are focused on the identification of fiscal decentralization influence on economic and social development (different empirical researches confirmed its positive, negative or insignificant influence). Thus, because of dynamic change of worldwide socio-economic trends, it becomes crucial to realize up-to-date empirical comprehensive research on fiscal decentralization impact on different aspects of country social and economic development. This article is devoted to the analysis of peculiarities, positive and negative consequences of fiscal decentralization and empirical testing of hypothesis that fiscal decentralization positively affected country social and economic development aspects. For this purpose, evolution of fiscal decentralization concept was analized. Main positive features (increase of transparency and accountability of sub-central government financial policy, amendment of public services quality etc.) and risks of its implementation (increase of macroeconomic instability due to lack of centralized control, along with high dependence of fiscal decentralization measures efficiency on competence of sub-central governments, decrease of large-scale social projects financing and others) were found. Thence, there is no single opinion about the impact of fiscal decentralization on country social and economic development, the main objective of the research is to test empirically the hypothesis that expansion of FD positively affected different measures of social and economic development (economic growth rate, inflation, employment rate, social contribution and others) (Simionescu et al., 2017; Lazanyi et al., 2017). Testing the hypothesis of FD's positive influence on different parameters of social and economic development was realized on the base of panel data analysis for the set of European countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova, Montenegro, Romania, Serbia, Slovenia, Turkey and Ukraine). Methodologically it was realized through the using of panel data regression model (independent variables - measures of fiscal decentralization, dependent variables - measures of social or economic development) in Stata 12/SE. This research allowed to confirm the hypothesis on positive impact of different measures of fiscal decentralization on GDP, GDP growth rate, foreign direct investments, and social contributions. Nevertheless, negative impact of fiscal decentralization on GNI per capita and export of goods and services was found. Besides, increase of public finance centralization stimulates inflation. There was identified controversial impact of different parameters of fiscal decentralization on dynamic of import of goods and services, accordingly.