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Research into the differences between income-generating capacities of rural municipalities and the effectiveness of vertical and horizontal transfers in levelling these differences reflects the financial situation of municipalities and their ability to meet the needs of local communities. The conclusions of this study can be used in the implementation of the government's financial policy. The aim of this article is to analyse and assess the effectiveness of the general subsidy for rural municipalities in Poland. The income-generating capacities of municipalities are expressed in the amount of tax revenue per capita, and its primary and secondary diversity is measured by the coefficient of variation weighted by the number of inhabitants. The study found very significant discrepancies among income-generating capacities of rural municipalities in Poland. The effectiveness of the fiscal equalization mechanism is moderately high, as individual transfers vary with respect to their "equalising power".

General subsidy as source of income for rural municipalities in Poland