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Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania
An effective local government system is one of the basic platforms for the functioning of the country in crisis conditions and the key to a successful post-war recovery of the economy at all levels. Studying the experience of European countries, primarily neighboring countries, greatly facilitates t...
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2023
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irk-123456789-1977442024-07-06T13:57:27Z Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania Borodina, O. Economic recovery An effective local government system is one of the basic platforms for the functioning of the country in crisis conditions and the key to a successful post-war recovery of the economy at all levels. Studying the experience of European countries, primarily neighboring countries, greatly facilitates the construction of an optimal model of such a model. The article analyzes the fiscal innovations of Poland in detail, taking into account the identity of the administrative-territorial system and the identity of the formation of local self-government bodies. The indisputable advantage of the introduction of innovative fiscal regimes (Estonian СIT) for the economy of Poland has been established. The conclusions are convincingly illustrated by the dynamics of Poland's GDP growth and the rankings of Poland and the Baltic countries in the world rankings of tax capacity. The study of the experience of Lithuania in the field of reforming the territorial organization of power, carried out in the article, led to the ascertainment of revolutionary phenomena introduced by the neighboring country during both stages of administrative reform. Namely: the presence of a financial self-control mechanism implemented at the sub-regional level and an exceptional example of the delegation of powers from local self-government to a territorial unit managed by a civil servant (and not vice versa). Effective recommendations on borrowing Polish and Lithuanian experience and adapting it to modern conditions of Ukraine's development have been provided. It was established that dialogue with local civil society is the driving force behind the effectiveness of local self-government reform Ефективна система місцевої влади – одна з базисних платформ для функціонування країни у кризових умовах та запорука успішного повоєнного відновлення економіки на усіх рівнях. Вивчення досвіду європейських країн, у першу чергу, країн-сусідів, значно полегшує побудову оптимальної моделі такої моделі. У статті детально проаналізовано фіскальні інновації Польщі, з огляду на тотожність адміністративно-територіального устрою та ідентичність становлення органів місцевого самоврядування. Констатовано беззаперечну перевагу введення інноваційних фіскальних режимів (Естонський СІТ) для економіки Польщі. Висновки переконливо проілюстровано динамікою зростання ВВП Польщі та рейтингами Польщі і країн Балтії у світових рейтингах податкової спроможності. Дослідження досвіду Литви у галузі реформування територіальної організації влади, виконане у статті, привело до констатації революційних явищ, які впроваджені країною-сусідом протягом обох етапів адміністративної реформи. А саме: наявність механізму фінансового самоконтролю, який реалізовано на субрегіональному рівні та виключний приклад делегування повноважень від місцевого самоврядування до територіальної одиниці, управління якою здійснює державний службовець (а не навпаки). Надано дієві рекомендації щодо запозичення польського та литовського досвіду та адаптації його для сучасних умов розвитку України. Констатовано, що діалог з місцевим громадянським суспільством є рушійною силою ефективності заходів з реформування місцевого самоврядування. Ця особливість має бути використана Україною під час завершення процесу реформування місцевого самоврядування. 2023 Article Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania / O. Borodina // Економічний вісник Донбасу. — 2023. — № 4 (74). — С. 90-100. — Бібліогр.: 25 назв. — англ. 1817-3772 DOI: https://doi.org/10.12958/1817-3772-2023-4(74)-90-100 http://dspace.nbuv.gov.ua/handle/123456789/197744 332.1:351.713: 336.2(477+438+474.5) en Економічний вісник Донбасу Інститут економіки промисловості НАН України |
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Economic recovery Economic recovery |
| spellingShingle |
Economic recovery Economic recovery Borodina, O. Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania Економічний вісник Донбасу |
| description |
An effective local government system is one of the basic platforms for the functioning of the country in crisis conditions and the key to a successful post-war recovery of the economy at all levels. Studying the experience of European countries, primarily neighboring countries, greatly facilitates the construction of an optimal model of such a model.
The article analyzes the fiscal innovations of Poland in detail, taking into account the identity of the administrative-territorial system and the identity of the formation of local self-government bodies. The indisputable advantage of the introduction of innovative fiscal regimes (Estonian СIT) for the economy of Poland has been established. The conclusions are convincingly illustrated by the dynamics of Poland's GDP growth and the rankings of Poland and the Baltic countries in the world rankings of tax capacity.
The study of the experience of Lithuania in the field of reforming the territorial organization of power, carried out in the article, led to the ascertainment of revolutionary phenomena introduced by the neighboring country during both stages of administrative reform. Namely: the presence of a financial self-control mechanism implemented at the sub-regional level and an exceptional example of the delegation of powers from local self-government to a territorial unit managed by a civil servant (and not vice versa).
Effective recommendations on borrowing Polish and Lithuanian experience and adapting it to modern conditions of Ukraine's development have been provided. It was established that dialogue with local civil society is the driving force behind the effectiveness of local self-government reform |
| format |
Article |
| author |
Borodina, O. |
| author_facet |
Borodina, O. |
| author_sort |
Borodina, O. |
| title |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania |
| title_short |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania |
| title_full |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania |
| title_fullStr |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania |
| title_full_unstemmed |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania |
| title_sort |
fiscal decentralisation and local government reform: adaptation in ukraine experience of poland and lithuania |
| publisher |
Інститут економіки промисловості НАН України |
| publishDate |
2023 |
| topic_facet |
Economic recovery |
| url |
http://dspace.nbuv.gov.ua/handle/123456789/197744 |
| citation_txt |
Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and Lithuania / O. Borodina // Економічний вісник Донбасу. — 2023. — № 4 (74). — С. 90-100. — Бібліогр.: 25 назв. — англ. |
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Економічний вісник Донбасу |
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AT borodinao fiscaldecentralisationandlocalgovernmentreformadaptationinukraineexperienceofpolandandlithuania |
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2024-07-07T04:01:24Z |
| last_indexed |
2024-07-07T04:01:24Z |
| _version_ |
1803891386023411712 |
| fulltext |
O. Borodina
90
Економічний вісник Донбасу № 4(74), 2023
DOI: https://doi.org/10.12958/1817-3772-2023-4(74)-90-100
UDC 332.1:351.713: 336.2(477+438+474.5)
O. Borodina,
PhD (in Public Administration),
Senior Researcher,
ORCID 0000-0001-7469-9529,
e-mail: borodinaoksana1306@gmail.com,
Institute of Industrial Economics of the NAS of Ukraine, Kyiv
FISCAL DECENTRALISATION AND LOCAL GOVERNMENT REFORM:
ADAPTATION IN UKRAINE EXPERIENCE OF POLAND AND LITHUANIA
Introduction. The need to create an effective
system of local government necessitates a thorough
study of foreign practice, primarily the analysis of the
implementation of local government reform in the
European Union (EU). Military operations in Ukraine
have only exacerbated this need, given the urgent need
to reformat local self-government to the conditions and
objectives of martial law and the post-war period. In this
context, it is useful to study the positive experience of
neighbouring countries, in particular Poland and
Lithuania, which have implemented effective reform the
local self-government practices that have had positive
consequences for their economies. Lithuania's
experience is particularly important, as it was in the
process of joining the EU that radical changes were
made to the entire public administration system.
Ukraine's European integration vector requires the
actual implementation of reforms based on the
principles of deconcentration, decentralisation, and
subsidiarity in relations between the central government
and the regions. However, regional imbalances in the
development of territories, the inability to implement
the reform on the ground, shortcomings in public
finance management, problems of fiscal
decentralisation, financial insolvency of the subregional
level, and the spread of corruption schemes are all
consequences of current problems of the local self-
government that require radical changes [1, 2].
The experience of such unitary countries as
Denmark, Norway, Sweden, Poland, Lithuania, Czech
Republic, Estonia, France shows that the transfer of
significant powers of state authorities to the local level
has strengthened the local self-government, eliminated
artificial obstacles (excessive permits, documents,
control from the centre) for business and
entrepreneurship, and provided a positive solution to the
problems that are extremely important for the post-war
development of Ukraine, namely
– creation of a transparent investment climate
– the ability of communities with sufficient
budgets, human and natural resources to effectively
address the issues of local residents and the
development of their territories.
Analysis of recent research and publications.
The topic of the formation of effective local
government, the ability of local self-government to
achieve its goals, its functioning in crisis conditions and
necessary reforms constantly attracts the interest of
researchers in various fields of social sciences. In our
opinion, fundamental studies in this regard are: the
publication by T. Horvat (the section on Lithuania,
prepared by A. Beksta, A. Petkevicius) [3] and the
publication by researchers from Kazakhstan, with a
detailed analysis of foreign experience in reforming the
public administration system [4].
J. Regulski was one of the first to trace the process
of reforming the local self-government system in Poland
in the 1990s [5]. Together with him, the methods and
techniques of decentralisation in Eastern Europe, in
particular Poland, were studied by W. Przybylski and
A. Wojciuk [6], the processes of reforming local self-
government in Poland by S. Michałowski, A. Pawłow-
ska [7], H. Izdebski [8]. Researcher A. Skorupska [9]
presents the results and prospects of international cross-
border cooperation, the role of the CU in this process in
the context of the decentralisation reform.
The experience of the Polish government and local
self-government in organising local finances is
presented in the study by Adam Sauer [10]. The Baltic
experience of reforming local self-government in the
context of European integration was the focus of a group
of researchers led by J. G. King [11]; I. Brauks [12]
analysed the impact of political factors on
administrative reforms and financial issues of the
functioning of the CBC in the transition period to
understand the prospects for the development of
municipalities and territorial communities as a result of
the reforms; the experience of A. Draudi�š [13] on the
experience of administrative and territorial reforms is
extremely interesting.
Domestic scholars S. Seriogin and L. Prokopenko
analysed in detail the experience of the self-government
reform in Lithuania, focusing on the organisation of
self-government control and audit, issues of repre-
sentation of communities of settlements, etc. O. Baimu-
ratov, T. Batanov and A. Golikova [15-17] focused on
the problems of the legal status of territorial
communities and also considered territorial
communities as carriers of corporate interests. Also, a
significant contribution to the study of local self-
government as a specific form of public authority and
the peculiarities of decentralisation was made by
O. Borodina
91
Економічний вісник Донбасу № 4(74), 2023
scientists of the Institute of Industrial Economics of the
National Academy of Sciences of Ukraine (O. Amosha,
Y. Zaloznova, S. Ivanov, V. Lyashenko, I. Pidoricheva,
etc).
Identification of previously unresolved parts of the
overall problem. Objective. At the same time, despite
the large amount of information and significant
scientific work in this area, various aspects of
understanding the legal nature and ways of
implementing the local self-government reform remain
relevant for consideration, taking into account the
experience of neighbouring EU member states. The
current situation of martial law only exacerbates this
need and makes it relevant for the national practice of
state-building, which requires additional comprehensive
analysis based on domestic and foreign experience. The
purpose of the study is to analyse the experience of
reforming local self-government in Ukraine's
neighbouring countries, namely Poland and Lithuania,
which are EU members, and the possibility of using it in
reforming the territorial organisation of power in
Ukraine in the current conditions of state-building,
complicated by martial law and with a view to post-war
development.
Summary. Describing the richness of institutional
forms of local self-government in Europe according to
certain criteria (Table 1), Polish researchers divide them
into three main groups: "Anglo-Saxon", "French",
"North and Central European" (Table 1).
Table 1
Main institutional forms of local self-government in Europe
Group Relation-ship of local
government with
central government
Range
of tasks
Financial
autonomy
Model features Systemic
position
Countries where
implemented
Anglo-
Saxon
Strong programmatic
and operational
autonomy
Relative
ly broad
Very
limited
Centralised, top-
down, focusing on
economic
performance and
quality of public
services
No constitu-
tional
provision
UK and Ireland
French Strongly limited
autonomy
Relative
ly small
Very
limited
Strengthening local
democracy
Constitu-
tionally
regulated
France, Italy, Belgium,
Spain, Portugal, Greece
North and
Central
Europe
Extensive autonomy Very
extensiv
e
Significan
t
Increase in
economic
efficiency,
strengthening of
local democracy
Constitu-
tionally
provided
Constitutionally provided
Norway, Sweden,
Denmark, Baltic
countries,
Austria, Switzerland,
Germany, the
Netherlands, Poland
Source: compiled by the author
It is worth noting that the Baltic States and Poland
belong to the same group. Thus, local authorities in
Europe vary greatly in size, functions, organisation and
forms of financing. Despite this diversity, there are a
number of common rules for the functioning of local
authorities:
1. It is assumed to be the main form of territorial
organisation of local communities.
2. The effectiveness of the financial mechanisms
assigned to the LS should correspond to the scope of its
tasks, so that it can perform them efficiently, effectively
and qualitatively.
3. Local governments should have a level of
financial and organisational autonomy and management
that allows them to perform their tasks in a manner that
meets the expectations of their citizens, in a manner that
meets the expectations of citizens.
4. There should be effective mechanisms to ensure
accountability and responsibility of local authorities to
members of local communities.
In this sense, namely, in the practice of fiscal
decentralisation and the creation of an effective system
of work of local self-government bodies with the use of
innovative tools and measures, it is useful to study the
experience of Poland and Lithuania.
Historically, the evolution of the formation and
development of local self-government bodies in Poland,
Lithuania and Ukraine over a long historical period has
been significantly influenced by the affiliation of parts
of these countries to certain state entities (the Polish-
Lithuanian Commonwealth, the Austro-Hungarian
Empire, the Kingdom of Romania, Sweden, the EU),
which, on the one hand, determines significant common
features, in particular, territorial, mental and social, and,
on the other hand, leads to significant socio-economic
differences, which have only increased since the 1990s.
In terms of self-government, all of these states became
independent at different times, gaining their own
statehood and immediately laying the foundations for
self-government at the constitutional level.
The processes of reforming the territorial
authorities in both Poland and Lithuania went through
several organisational stages, which were marked by
institutional, regulatory and fiscal changes.
O. Borodina
92
Економічний вісник Донбасу № 4(74), 2023
Poland
As noted in article [19], the experience of European
countries, in particular Poland, proves that in the
continental system of local self-government (which is
implemented, including in Ukraine), the three-tier
system is effective. It was Poland that, at the first stage,
eliminated the level of the county and replaced the three-
tier system with a two-tier system, but at the next stage
of the reform, in 1999, returned to the previous
organisation of territorial power, such as region-district-
community. The need for Ukraine to take into account
the European approach to territorial division and the
Nomenclature of Territorial Units for the purposes of
NUTS statistics has been repeatedly emphasised by
Ukrainian scientists from the Institute of Industrial
Economics of the National Academy of Sciences [20].
The correspondence between the levels of NUTS in the
European Union and the required level in Ukraine is
shown in Table 2
Table 2
Administrative correlation of NUTS levels in Poland and Ukraine
Level in accordance
with the nomenclature
NUTS
Population size Administrative division
of Poland
Analogue of Ukraine
NUTS-1 3-7 million people Macroregions Economic district
NUTS-2 800 thousand-3 million
people
Voivodeships
(wojewodztwo)
Area
NUTS-3 150 thousand - 800
thousand people
Poviats (powiat),
including cities with the
status of urban powiat
Sub-regional level (rural
and urban areas)
LAU (NUTS 4-5) up to 150 thousand people Commune (gmina) communities
Source: compiled by the author.
The correlative identity with the Polish territorial
administrative-territorial structure gives Ukraine the
opportunity to take into account the positive effects
based on foreign experience. Given that Poland and
Ukraine have almost identical starting points and similar
territorial divisions, it is necessary to take into account
the experience of fiscal reform.
In Poland, the process of restoring local self-
government started the fastest, in the early 1980s.
Thanks to the active conceptual development and
practical activities of the democratic political
opposition, a new generation of Polish politicians
addressed the role of self-government (community as a
form of organisation of residents, providers of
administrative services, institution responsible for the
development of a particular region, etc.)
The success of the administrative-territorial reform
in Poland is the result of the fact that it was carried out
on the basis of an effective combination of its own
tradition with the European experience and practice of
the local self-government. However, in addition to its
successes, the local self-government reform in Poland
was not without certain mistakes, which should be taken
into account when studying the Polish experience in
Ukraine:
1) ambiguous wording of legal provisions;
2) financial insolvency of the sub-regional level
(counties);
3) ineffectiveness of local referendums due to low
turnout;
4) insufficient cooperation of municipalities;
5) uneven distribution of tasks and costs at the local
level;
6) insufficient cooperation between local
governments and the private sector in the framework of
public-private partnerships;
7) multiple terms of office of gmina heads and
mayors.
In recent years, Poland and many EU countries
have seen an increase in the dynamics of reform
activities aimed at modernising public administration,
including its key component – local self-government.
Their initiators, looking for inspiration, turn to different
paradigms of public administration and at the same time
are guided by the values of the administrative culture
dominant in their country.
Over the past two years, the military actions in
Ukraine have given a significant impetus to the
intensification of economic processes in European
countries. Ukraine's neighbouring countries have
benefited from the mass migration of Ukrainian
refugees: despite the loss of economic growth due to the
rising cost of imported energy, all of Ukraine's
neighbours, except Moldova, have experienced GDP
growth rates of 2-6%.
Poland's GDP growth due to the influx of refugees
was 2.1% in 2022 [22]. According to Credit Agricole
economists, the value of additional demand created by
Ukrainian migrants in 2022 ranged from 13.4 to
17.6 billion zlotys. Data from the Central Statistical
Office of Poland (GUS) show that the country's GDP is
growing, mainly due to an increase in consumer
spending, especially among basic goods, which is driven
by the influx of migrants from Ukraine. The Bankier.pl
portal notes that, according to official data, for the first
time in more than 40 years, Poland's GDP grew more
than China's (Fig. 1) [23].
O. Borodina
93
Економічний вісник Донбасу № 4(74), 2023
Fig. 1. GDP dynamics in Poland and China in 1990-2022, % [22]
The flow of human capital from Ukraine to
European countries also had a significant impact on the
EU's macroeconomic indicators. Thus, the inflow of
migrants from Ukraine, according to Deloitte, led to an
increase in the EU labour force by 0.8% in 2022 [23].
In order to increase the investment attractiveness of
Polish companies, the government decided to introduce
the Estonian corporate income tax (CIT) in Poland, a
taxation model that has been successfully operating in
Estonia for 20 years. According to the Paying Taxes
ranking of tax systems around the world, Estonia and
Latvia have been ranked first and second, respectively,
in terms of competitiveness among tax systems around
the world for several years (Fig. 2-3).
The introduction of the exit capital tax in Poland at
the first stage was marked by tax advantages. At the
same time, the first stage of the introduction of the Exit
Capital Tax in Poland resulted in a new special tax
regime that complicated the corporate tax landscape.
Namely, the initial conditions of the 2021 fiscal reform
in Poland contained a list of problems and
shortcomings:
The Estonian CIT was intended only for limited
liability companies and joint stock companies. Other
entrepreneurs operating, for example, as a limited
partnership, joint-stock company, individual
entrepreneur, cooperative, are not eligible to use it.
Fig. 2. Ranking of countries by competitiveness of tax systems
Source: 2023 International Tax Competitiveness Index | Tax Foundation.
-15
-10
-5
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10
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GDP growth in China and Poland, in % of the previous year
China Poland
O. Borodina
94
Економічний вісник Донбасу № 4(74), 2023
Fig. 3. European ranking of countries by competitiveness of tax systems
Source: 2023 International Tax Competitiveness Index | Tax Foundation.
Estonian CIT does not include financial
companies, credit companies, companies in bankruptcy
or liquidation, beneficiaries of special economic zones
and the Polish Investment Zone, as well as taxpayers
involved in transactions such as division, mergers, etc.
The company's revenue limit was PLN 100
million per year (including VAT).
In order to increase the efficiency of tax legislation
application, the Polish government has carried out a
"major overhaul" of the Estonian CIT, which had the
following consequences:
– the tax became available not only to small
businesses, but also to all companies regardless of their
annual income;
– the obligation to make investment expenditures
for certain purposes in a certain amount is completely
cancelled;
– limited liability companies and joint stock
companies were added to the list of legal forms of
companies eligible for the tax.
The advantages of the Estonian CIT version 2.0 in
Poland as of 01.01.2023 are as follows: (Table 3):
Table 3
Benefits of Estonian CIT version 2.0 (from 1 January 2023)
Advantage The essence of an advantage
1. Estonian CIT for small and large enterprises No need to worry that if you do too much, you will lose the
opportunity to pay the Company for the Estonian CIT
2. Estonian CIT for different types of companies Various types of companies, except for joint stock
companies and limited liability companies, can benefit
from Estonian CIT
3. Switching to Estonian СIT without any fees
and difficulties
When switching to the Estonian СIT, the Company does
not pay the difference between accounting and tax
calculations
4. Switching to Estonian SIT without additional
obligations
It is up to the company to decide whether it will use the
money saved on tax for investment, accumulation of
reserves, or improvement of its own liquidity
Source: compiled by the author.
O. Borodina
95
Економічний вісник Донбасу № 4(74), 2023
The stress tolerance of the taxation system for
foreign investment in some European countries and the
EU as a whole, which is extremely important for the
post-war economy of Ukraine, is demonstrated in Fig. 4.
For example, the Estonian tax system, even in the
context of the crisis caused by the 2019 pandemic,
demonstrated an increase in foreign direct investment
(FDI), confirming its first place in the ranking of
competitive tax systems in the world.
Fig. 4. Foreign direct investment inflows, as a percentage of GDP, in some European countries
Source: World Bank Data. URL: https://data.worldbank.org/.
Poland and Latvia have also maintained stable
positions over the past few years. Ukraine, on the other
hand, had negative FDI growth during the COVID
depression.
The advantages of the Estonian City for Ukraine
are obvious: de-offshorisation; encouraging businesses
to retain profits for expansion and modernisation of
production; avoiding aggressive tax planning schemes,
when an enterprise is deliberately made unprofitable in
order to avoid paying income tax; reducing the
corruption component through greater simplicity and
transparency of the new tax administration, and, as a
result, attracting investment. At the same time, Ukraine
has not been able to move forward with its
implementation for more than five years due to the
indecision of politicians and the lack of guaranteed
compensatory mechanisms to cover budget losses.
At the same time, it should be noted that the
investment component was undoubtedly beneficial for
Ukraine's post-war development. In addition, Ukraine
has seen major regulatory shifts in the reform of
industrial parks. An innovative fiscal regime, even if
implemented locally (sectorally or specifically
regionally), will significantly increase the investment
attractiveness of Ukraine's economy. Industrial parks
will form the basis of the framework for sustainable
post-war regional development in Ukraine, especially in
the regions where many enterprises have relocated.
These are the regions on the border with Poland and the
Baltics.
Lithuania
The process of reforming the territorial
organisation of power in Lithuania is also divided into
stages. The first stage began in 1990 with the adoption
of the Law on the Establishment of Local Self-
Government Bodies, which introduced a new structure
of local self-government. The law defined LS as
"independent activities of residents of territorial-
administrative units and LS institutions accountable to
them, aimed at making and implementing decisions on
internal issues" [24]. The law established two levels of
government: administrative units of higher-level self-
governments (44 rayon self-governments and 11 city
self-governments) and lower-level administrative units
(530 apilinkas), which were part of higher-level self-
governments and financially dependent on them. The
disadvantages of this division were as follows:
– it was based on the previous administrative-
territorial structure,
– lack of a clear separation of functions of central
and local authorities,
– no real economic and financial basis for the
activities of local authorities was created.
These arguments led to the transition to the second
stage of reforms. In early 2019, the government
announced the consolidation of rayons. This helped to
avoid duplication of functions and create an effective
system of local governance. The two levels of
administrative units: self-government (60 units) and
counties (10 units) are shown in Fig. 5:
-5,0
0,0
5,0
10,0
15,0
20,0
25,0
2000 2005 2006 2014 2015 2016 2017 2018 2019 2020
The volume of foreign direct investment inflows, in % of GDP, in some European countries
Estonia European Union Georgia Latvia Poland Ukraine
O. Borodina
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Економічний вісник Донбасу № 4(74), 2023
Fig. 5. Administrative and territorial division of Lithuania
Source: URL: http://ukrexport.gov.ua/ukr/z_info/lit/1697.html.
Thus, since 2009, the following units have existed
in Lithuania:
– counties (Lithuanian: apskritis) – the highest
administrative unit of Lithuania, the main function of a
county is land management and land reform. County
administration is an integral part of the state
administration and is implemented through the county
governor, ministries and other government institutions;
– self-government (Lithuanian: savivaldyb�) – the
second level of administrative and territorial division of
Lithuania. Territories of self-governments have
common social, economic, ethnic and cultural interests;
– seniūnija – branches of local administrations that
do not have the status of administrative-territorial units
and are subordinated to self-government bodies,
however, self-government councils provide them with
certain independent tasks and powers to perform within
their territory; the head is a starosta – a civil servant
appointed on a competitive basis;
– seniūnaitija – formed from settlements or parts
thereof (from one or more settlements with common
borders, from one or more parts of settlements with
common borders), regardless of whether the seniūnaia
are established or not. The chairman, an elder, is elected
for a 2-year term, works on a voluntary basis and
represents the interests of the residents of the sąjūnaitija
in the sąjūnija, self-government bodies and state
institutions operating on the territory of the self-
government.
Self-government institutions in Lithuania:
– representative body: council of self-government;
– executive body: director of self-government
administration;
– control body: self-government controller.
The self-government council is an elected body
elected by the residents living on its territory for a four-
year term. The council elects the mayor of the self-
government from among its members.
The Lithuanian Basic Law gives local governments
the right to develop and adopt their own budgets, set
local tariffs and levy local taxes
The mechanism of control implemented in
Lithuanian self-government is extremely interesting and
necessary for borrowing in the process of developing
local self-government in Ukraine.
The self-government controller is hired on a
competitive basis, with educational and work
experience requirements. The controller is accountable
to the self-government council. His/her activities are
based on the principles of independence, legality,
openness, objectivity and professionalism. The self-
government controller (self-government control and
audit service) performs external financial and
performance audits of the self-government
administration, self-government administrative entities,
and self-government-controlled enterprises. To carry
out internal audit, the self-government council
establishes a centralised internal audit service
accountable to the director of the administration. He/she
ensures the independence of the service's activities and
organisational independence and cannot delegate this
management function to other civil servants or
employees of a public legal entity. The Internal Audit
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Service works in accordance with the annual activity
plan agreed with the Director of the Administration. It
performs its functions by conducting internal audits and
formulating recommendations based on their results.
At the same time, there are risks of applying this
model of administrative - territorial system in the
country, the main one being that when the responsibility
for providing a significant part of services to the
population lies at the local level, the central government
may to some extent avoid responsibility, since the
frontline executive units for the provision (or non-
provision) of these services are municipalities. Such
problems are rather the consequences of excessive
decentralisation and the state's withdrawal from a
number of local issues that local governments cannot
handle on their own (example, maintenance of
municipal property and ensuring the continuity of
services to the population). In Ukraine, this issue
remains relevant in the context of public consultations.
It is necessary to study and implement the
Lithuanian experience of local administration
branches –sąjūniai, which, although not separate
administrative-territorial units, are vested with certain
independent tasks and powers by the councils of self-
government within their territory. In other words, we
have an exceptional example of delegation of powers
from local self-government to a territorial unit managed
by a civil servant (and not vice versa). This course of
events is undoubtedly due to the level of development
and self-awareness of the society where an effective
system of local self-government has been built.
A convincing illustration of the study is the
position of the countries in the Doing Business ranking:
even in the pre-war period, Lithuania ranked 11th in the
global ranking of business opportunities in the country,
Poland - 40th, Ukraine - 64th out of a possible 152.
The Baltic States, as an important component of the
EU and reliable foreign policy partners of Ukraine, are
now not only testifying to the success of the
modernisation of the local government and
administration system, but also demonstrating an
example of the proper implementation of EU values and
principles for building a powerful local government and
effective territorial organisation of public power on the
basis of decentralisation.
The following factors should contribute to the
successful completion of the local government reform in
Ukraine:
– first, the victory of the Ukrainian armed forces
over Russia's military aggression;
– secondly, the development of a legislative
framework for the development of local self-
government and the support of society, because without
this, the reform makes no sense;
– third, qualified personnel capable of continuing
the implementation of the local self-government reform.
It is worth noting that the positive experience of
European countries and the commitments undertaken by
Ukraine in accordance with the European Charter of
Local Self-Government in terms of the ubiquity and
financial self-sufficiency of territorial communities
prove that without decentralisation in modern Europe, it
is impossible to make public administration effective
and public services on the ground of high quality.
Conclusions
To summarise the above, it can be noted that
1. Using the experience of post-war recovery is
absolutely necessary. At least three countries that had to
recover from the war are now among the world's top 5
economies (Germany, Italy, and Japan). The period of
their recovery is called an "economic miracle", which
indicates new opportunities for the post-war economies
of the affected countries.
2. It is useful and important to use the potential
and capabilities of neighbouring countries that have
carried out effective reforms, primarily in the context of
decentralisation, which has become a key to further
socio-economic growth. Such countries, in particular,
are Poland and Lithuania, given the proximity of
territories, mentality, historical proximity, and
correlation of development indicators in the early
periods.
3. The classical model of corporate profit taxation
in Ukraine is inefficient. In the context of post-war
perestroika, it is advisable to carry out not only
quantitative but also qualitative transformations,
fundamental changes in the philosophy of management,
and innovative modernisation, which will become a
driver of the post-crisis economic development of the
state. There is no doubt that a comprehensive solution to
the problem is needed - not only a change in the taxation
system, but also the introduction of a whole range of
legislative changes in the area of business and
investment protection, protection of private property
and other guarantees, rights and freedoms. The main
advantages of the Estonian СІТ for Ukraine (even if it is
temporary) are as follows:
– deoffshorisation;
– incentives for business entities to retain profits
for expansion and modernisation of production;
– avoidance of aggressive tax planning schemes,
when an enterprise is deliberately made unprofitable in
order to avoid paying income tax;
– reducing the corruption component through
greater simplicity and transparency of the new tax
administration. As a result, attracting investment.
4. Both the Polish and Lithuanian models of local
self-government are characterised by extremely broad
powers of territorial units, while they are based on a high
level of political activity and community consciousness,
a high level of civil society development, and an
administrative method of forming the basic level of the
Polish administrative-territorial structure. The countries
have changed the entire paradigm of public
administration, which was a response to the problems
associated with finding optimal relations between the
regions and the political centre. Ukraine should partially
use this experience, as European models of regional
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policy that emerged as a result of administrative-
territorial reform are characterised by a pronounced
principle of participation that permeates all levels of
local government.
5. It is necessary to study and implement
Lithuania's experience in introducing a system of
external and internal financial audit, as well as
delegating certain independent tasks and powers to
branches of local administrations to perform within their
territory.
6. The reform of local self-government in
Lithuania was successful, in particular, due to the
government's willingness to carry out a forced merger if
municipalities cannot reach an agreement. However, the
main key to Lithuania's success is meaningful
consultation at the local level and a certain degree of
flexibility in adapting reform proposals. Rapid, coercive
reforms initiated by the central government are likely to
face resistance at the level of local democracy. Thus,
dialogue with local civil society is a driving force for the
effectiveness of local government reform measures.
This feature should be used by Ukraine in completing
the local government reform process. After all, the
primary subject of local self-government in our country
is the territorial community, which includes a set of
residents living in a certain territory with clearly defined
boundaries, identifying themselves as residents of this
territory and united by common interests to address
issues of local importance both directly and through
representative bodies on the ground.
7. Local authorities should develop and
implement measures aimed at creating socio-economic
processes that affect the development of territories,
based on close and constant contact with the business
sector and non-governmental organisations, using the
best local resources. The quality of governance of
Ukrainian local authorities has a significant impact on
the opportunities for socio-economic development and
entrepreneurship, as well as on public trust in public
authorities.
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pokazuje-skale-naplywu-ukraincow-do-polski/bfewqs5 [in Polish].
O. Borodina
100
Економічний вісник Донбасу № 4(74), 2023
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Republic of Lithuania of 7 July 1994]. Retrieved from https://e-seimas.lrs.lt/portal/ legalAct/lt/TAD/TAIS.63899?jfwid=6m4099nqt
[in Russian].
25. Mistseve samovriaduvannia v krainakh Skandynavii ta Baltii [Local self-government in the Scandinavian and Baltic
countries]. Retrieved from http://sklinternational.org.ua/wp-content/uploads/2016/09/%D0%9C%D1%96%D1%81%D1%86%
D0%B5%D0%B2%D0%B5-%D1%81%D0%B0%D0%BC%D0%BE%D0%B2%D1%80%D1%8F%D0%B4%D1%83%D0%B2%
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%D0%BA%D0%B0%D0%BD%D0%B4%D0%B8%D0%BD%D0%B0%D0%B2%D1%96%D1%97-%D1%82%D0%B0-%D0%91
%D0%B0%D0%BB%D1%82%D1%96%D1%97.pdf [in Ukrainian].
Бородіна О. А. Фіскальна децентралізація та реформування місцевого самоврядування: адаптація в Україні
досвіду Польщі та Литви
Ефективна система місцевої влади – одна з базисних платформ для функціонування країни у кризових умовах та
запорука успішного повоєнного відновлення економіки на усіх рівнях. Вивчення досвіду європейських країн, у першу чергу,
країн-сусідів, значно полегшує побудову оптимальної моделі такої моделі.
У статті детально проаналізовано фіскальні інновації Польщі, з огляду на тотожність адміністративно-територіального
устрою та ідентичність становлення органів місцевого самоврядування. Констатовано беззаперечну перевагу введення
інноваційних фіскальних режимів (Естонський СІТ) для економіки Польщі. Висновки переконливо проілюстровано
динамікою зростання ВВП Польщі та рейтингами Польщі і країн Балтії у світових рейтингах податкової спроможності.
Дослідження досвіду Литви у галузі реформування територіальної організації влади, виконане у статті, привело до
констатації революційних явищ, які впроваджені країною-сусідом протягом обох етапів адміністративної реформи. А саме:
наявність механізму фінансового самоконтролю, який реалізовано на субрегіональному рівні та виключний приклад
делегування повноважень від місцевого самоврядування до територіальної одиниці, управління якою здійснює державний
службовець (а не навпаки).
Надано дієві рекомендації щодо запозичення польського та литовського досвіду та адаптації його для сучасних умов
розвитку України. Констатовано, що діалог з місцевим громадянським суспільством є рушійною силою ефективності заходів
з реформування місцевого самоврядування. Ця особливість має бути використана Україною під час завершення процесу
реформування місцевого самоврядування.
Ключові слова: децентралізація, фіскальні інновації, місцеве самоврядування, повоєнний розвиток, субрегіональний
рівень, Естонський СІТ, Польща, Литва.
Borodina O. Fiscal Decentralisation and Local Government Reform: Adaptation in Ukraine Experience of Poland and
Lithuania
An effective local government system is one of the basic platforms for the functioning of the country in crisis conditions and the
key to a successful post-war recovery of the economy at all levels. Studying the experience of European countries, primarily
neighboring countries, greatly facilitates the construction of an optimal model of such a model.
The article analyzes the fiscal innovations of Poland in detail, taking into account the identity of the administrative-territorial
system and the identity of the formation of local self-government bodies. The indisputable advantage of the introduction of innovative
fiscal regimes (Estonian СIT) for the economy of Poland has been established. The conclusions are convincingly illustrated by the
dynamics of Poland's GDP growth and the rankings of Poland and the Baltic countries in the world rankings of tax capacity.
The study of the experience of Lithuania in the field of reforming the territorial organization of power, carried out in the article,
led to the ascertainment of revolutionary phenomena introduced by the neighboring country during both stages of administrative reform.
Namely: the presence of a financial self-control mechanism implemented at the sub-regional level and an exceptional example of the
delegation of powers from local self-government to a territorial unit managed by a civil servant (and not vice versa).
Effective recommendations on borrowing Polish and Lithuanian experience and adapting it to modern conditions of Ukraine's
development have been provided. It was established that dialogue with local civil society is the driving force behind the effectiveness
of local self-government reform measures. This feature should be used by Ukraine during the completion of the process of reforming
local self-government.
Keywords: decentralization, fiscal innovations, local self-government, post-war development, sub-regional level, Estonian СIT,
Poland, Lithuania.
Received by the editors 27.11.2023
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