Fiscal Coordinationasthe Key Issue for Functioning Fiscal Federalisam in Multi-Level Countries / Fiskalna koordincija kao ključni faktor funkcioniranja fiskalnog federalizma u složenim državama

Abstract

According to theory of fiscal federalism the optimum efficiency of the government sector can be ensured only by balancing the degree of centralization and decentralization of fiscal responsibilities between the central and local governments, where a fair distribution of income and economic stability can be provided by the central government, and the efficient use of resources by the local governments. Comparative analysis of the effects of the fiscal decentralization process in the world showed that a different balance of power between central and local governments can threaten the macroeconomic stability of complex countries. In conditions of week central government and strong regional governments, which is the case in Bosnia and Herzegovina, fiscal coordination between governments becomes a critical issue of functioning fiscal federalism in complex countries. Theoreticians of the new theory of fiscal federalism, called ‘a second generation theory’, believe that it is necessary to establish an institutional structure that will ensure smooth functioning of fiscal federalism. In that sense fiscal coordination between levels of government is seen as a key tool for running prudent fiscal management in complex countries that can bring the fiscal policy of middle levels of government in line with national fiscal goals.