Budget Decentralization and the Resilience of Local Finances in the Context of Global Shocks

Abstract

The article explores the theoretical and practical aspects of the impact of fiscal decentralization on the resilience of local finances under global shocks. It is substantiated that decentralization is a key factor in shaping an adaptive financial system capable of effectively responding to external challenges, including the COVID-19 pandemic, the energy crisis, and the war. The dynamics of the revenues of Ukraine’s consolidated, state, and local budgets for 2011-2024 are analyzed, which makes it possible to identify trends in the redistribution of financial resources among different levels of the budget system and to assess the outcomes of the decentralization reform. It is shown that since 2015 there has been a gradual expansion of the financial powers of local authorities; however, during crisis periods, a temporary concentration of resources at the state level occurs to ensure macro-financial stability. The classification of key risks to local finances during global shocks – fiscal, institutional, socio-economic, and investment – has been carried out. It is determined that their interaction creates a complex environment for decision-making, in which the effectiveness of financial management and the presence of stabilization mechanisms are of particular importance. Based on a comparative analysis of foreign models of decentralization (Switzerland, Germany, Canada, Poland, Greece, France), it is proven that a high level of financial autonomy increases the flexibility of local budgets but requires effective intergovernmental equalization tools to prevent regional disparities. The paper proposes directions for strengthening the resilience of Ukraine’s local finances: expanding local revenue sources, creating stabilization funds, digitalizing budget processes, improving the system of intergovernmental transfers, and fostering partnerships between the state, communities, and businesses. It is concluded that the further development of fiscal decentralization should be based on combining financial autonomy with effective mechanisms of solidarity, which will ensure the sustainability of public finances and the balanced development of territories in the post-war period.