Czech Republic : Intergovernmental Fiscal Relations in the Transition
The study presents an overview of the most relevant, current intergovernmental fiscal issues in the Czech Republic, centered on the options available to prod policy planning. The fragmentation at the lowest tier of government is the most striking feature of the administrative structure, thus suggesting a strategic direction for further administrative reforms to sustain fiscal decentralization, by empowering territorial self-governing units, through meaningful autonomy, through the establishment of a multilevel government coordinating body, for the definition of autonomous functions on expenditures, and revenues, and, by creating financial, and legal incentives, to facilitate an asymmetric assignment of revenue, and expenditure. Specific policy actions to clarify responsibilities of the strategic direction for expenditure assignments should include institutional inter-governmental cooperation, and dialogue, through a broad based commission to recommend regional expenditures, and, the Budget Rules Law should be amended to preempt unfounded mandates to local governments. Revenue autonomy should be boosted by increasing predictability of local budgets, through structural policy parameters, restoring tax-effort incentives, and, reviewing the adopted adjustment coefficient for tax-sharing distribution; while a rationalized transfer system, should focus on decreasing the number of specific subsidies, prioritizing programs to stabilize transfers within a medium-term expenditure framework, including the evaluation of a separate Fiscal Equalization Fund to reduce regional fiscal disparities. Institutional framework, and prudential rules would ensure fiscally responsible borrowing, and encourage a competitive financial market.