Resolving Socioeconomic Disparities through Fiscal Decentralisation in the Republic of Macedonia

Abstract

This article examines whether fiscal decentralisation in the former Yugoslav Republic of Macedonia between 2005 and 2012 has been achieved at the expense of economic and territorial cohesion. It examines the presence of longstanding socioeconomic disparities and rural under-development, before considering whether fiscal decentralisation has: facilitated a more equitable distribution of public resources; created the optimal conditions for expanding citizens’ access to basic services; and reduced socioeconomic disparities between urban and rural areas. The article argues that unless carefully designed and implemented, fiscal decentralisation reforms can have unintended consequences and may actually exacerbate socioeconomic disparities rather than reduce them.

Notes

¹ Hereafter, Macedonia's ethnic communities are referred to as ‘Albanian’ and ‘Turkish’. Where the term ‘Macedonian community’ is used, it refers to the majority, Slavic ethnic group.

² According to the 2002 population census, Macedonia's ethnic breakdown is 64.18% Macedonian, 25.17% Albanian and the rest smaller communities, such as Turks, Roma and Serbs. Albanians reside mainly in compact areas in the north and west of the country, along the borders with the Republic of Albania and Kosovo.

³ The devolved competences referenced in the Framework Agreement were: areas of public services; urban and rural planning; environmental protection; local economic development; culture; local finances; primary and secondary education; social welfare; and health care.

⁴ The UNDP's Human Development Index is based on life expectancy, literacy and school enrolment rates, and Gross Domestic Product (GDP) per capita.

⁵ During the Yugoslav period public sector employment, which was concentrated in urban areas, was dominated by members of the majority Macedonian community. The lure of jobs in the public administration encouraged more Macedonians to move to towns and cities than other ethnic groups.

⁶ Interview with UNDP official, Skopje, 12 November 2009.

⁷ Derivation-based income tax contributions are paid in the jurisdiction where an individual lives and this may be different from where they work. The rationale is that individuals tend to consume more local public services in their place of residence than in their place of work, if these differ (Feruglio et al. 2008, p. 33).

⁸ There are 84 municipalities in Macedonia (plus the City of Skopje). To aid the analysis of municipal fiscal data, the municipalities were ranked according to their average per capita income from basic revenues into four equally sized groups (of 21 municipalities). The first quartile includes those 21 municipalities with the lowest average rates of per capita income, while the fourth quartile includes those with the highest.

⁹ ‘Basic revenues’ are revenues from all sources other than capital grants and grants for social sector functions.

¹⁰ Interview with the head of a USAID fiscal decentralisation project, Skopje, 10 May 2010.

¹¹ Interview with the executive director of ZELS (Association of the Units of Local Self-Governance of the Republic of Macedonia), Skopje, 20 March 2012.

¹² Interview with USAID project official, Skopje, 14 June 2010.

¹³ The fixed three million denar grant greatly enhances the revenues of the smaller, less populous municipalities, but the amount is relatively insignificant in more populous jurisdictions.

¹⁴ Interview with the head of a USAID fiscal decentralisation project, Skopje, 10 May 2010.

¹⁵ Some forms of inter-municipal cooperation are, however, legally required, for example fire-fighting and use of eight regional landfills.

¹⁶ Interview with UNDP official, Skopje, 29 June 2011.

¹⁷ Interview with UNDP officials, Skopje, 14 March 2012.

¹⁸ An index of 1 indicates that the development of the region is equal to the national average. An index higher (or lower) than 1 indicates the development of the region is above (or below) the national average.

¹⁹ The economic–social index is based on GDP per capita, gross value added of the non-financial sector, fiscal revenues per capita and the rate of unemployment.

²⁰ The demographic index is based on the rate of population growth, the ageing coefficient, rate of migration and the proportion of university degrees per 1,000 inhabitants.

²¹ ZELS (Association of the Units of Local Self-Governance of the Republic of Macedonia) Newsletter, December 2011, Skopje.