Development of regional economic systems under the impact of financial decentralization: display, challenges and new opportunities

Abstract

The ongoing processes of authorities’ and public finances’ reforming in Ukraine stipulate the real opportunities to increase the resources of sustainable development of regional economic systems. At the same time, global practice shows that financial decentralization processes produce contradictions and development risks for a country and its regions, preventing the achievement of designated goals. These aspects explain the growing interest in scientific and practical problems of defining the influence of financial decentralization on the development of regional economic systems. The methods of systemic-structural and functional analysis and economicmathematical modeling were applied in the process of the research of financial decentralization’s influence on the development of regional economic systems. The analyzed practices of financial decentralization reform in the world show that there is no unified model of its implementation. The paper outlines the problems the researchers faced in the course of empirical studies to define the patterns of impact the financial decentralization has on the processes of development of various economic systems. Based on the logarithmic model of multiple linear panel data regression, the paper verifies the hypothesis about the influence of decentralization on economic growth of Ukrainian regions in 2017-2018. Its impact on economic growth of regions by revenues and expenditures as well as the growth of local budgets’ own revenues is estimated as positive. Strong negative influence of interbudgetary transfers on independent variable is experimentally confirmed. Based on the results of conducted empirical research, the paper suggests the recommendations regarding the imperatives the policy of sustainable growth of Ukrainian regions should be developed on. Keywords—financial decentralization, regional economic systems, local budgets, panel data, local governments, economic growth