LOCAL FINANCES IN WESTERN BALKAN COUNTRIES: FOCUS ON OWN -SOURCE REVENUES AND CAPITAL INVESTMENTS

This study examines the fiscal dynamics of local governments’ finances in the Western Balkan countries, focusing on their own source revenues and capital investments, made from the municipalities. While spending for capital investment has increased in nominal terms, the share of municipal spending on capital investments has been downwardly unstable over the past 16 years. In addition to central government transfers, several significant factors contribute to the determination of municipal own-source revenues, including central and local public investment, current expenditures, and municipal development index. The study reveals that capital investment depends on its own source revenues or capital transfers from the central government, where local capital expenditure emerges as a robust determinant, exerting a stronger influence on municipal fiscal autonomy compared to central government investments. This finding underscores the importance of local capital expenditure in enhancing fiscal independence at the local level. This research emphasizes the need for a comprehensive understanding of investment allocation, development indicators, and promoting local revenue mobilization. The findings suggest that enhancing local fiscal autonomy requires a shift in policy focus towards stimulating local capital expenditure and prioritizing human development. By identifying the factors that influence municipal own-source revenues, this study provides valuable insights for local management in strengthening the financial capacities of local governments in the Western Balkan countries.