A comparative analysis of local government financial autonomy in Albania

Purpose- The financial aspect of local government autonomy is considered a very important topic in the public finance literature especially for the developing countries. Fiscal autonomy empowers the local government units with the right means to provide better services for the community and to proper allocate the funds based on the citizens needs. The purpose of this paper is to study the level of financial autonomy in Albanian municipalities and compare the characteristics within different units of local government.  Methodology- In this paper we analyze the financial autonomy of Albanian municipalities by proposing an index to compare the governmental units and classify them in four classes according to the degree of autonomy. Seven quantitative indicators are used in the index, with different importance coefficients. F indings - In Albania, while important progress has been made on advancing the decentralization reform in the last decade, autonomy of local government still remains a challenge. Local authorities do not have appropriate financial resources and they are depended on transfers from the central government budget. Conclusion- The index results show that only a small share of local expenditures is covered by local tax revenues, while intergovernmental transfers constitute an important source of funds for the execution of local functions and service delivery.