Correlation of Functional Responsibilities and Financial Mechanism between Central and Local Government

An important equilibrium for the quality of public services is the correlation between resource allocation and functional responsibilities on different tires of governments. This paper delves into the intricate correlation between functional responsibilities and the financial mechanisms of central and local government entities. A comparative analysis examines three primary dimensions: expenditure allocation based on governmental functions, the derivation of powers within the two tiers of government, and a juxtaposition of expenditure weights against competency weights across governmental levels. By juxtaposing these metrics, it offers a nuanced understanding of the alignment—or lack thereof—between financial allocations and functional mandates across governmental levels. Based on the empirical analyses the paper scrutinizes expenditure patterns across central and local government levels of Albania and delineates allocations according to distinct functions. This correlation is a starting point for evaluating the impact of both levels of expenditures on the productivity of the economy as a financial mechanism of efficiency. This study proves a scientific mechanism for combining the ratio of functions and financial mechanisms between local and central governments and the empirical impact on the annual growth rate of Gross Domestic Product (GDP). The results are crucial for informing policy decision-makers on optimizing resource allocation, enhancing governance efficiency, and fostering synergy between both tiers of government.