Decentralization, Privatization, and the Solvency of Local Governments in Reforming Economies: The Case of Budapest

Local Finance and Economic Reform in Eastern Europe

Extensive decentralization, both political and fiscal, is taking place in many of the countries newly emerging from behind the socialist veil. Decentralization represents both a reaction from below to the previously tight political control from the center and an attempt from above to further the privatization of the economy and to relieve the strained fiscal situation of the central government. Although there are of course many variations in this process from country to country, some important common elements arise from the similar institutional starting point in all countries and the common transitional problems most of them are facing. The on-going reforms of subnational finance in the transitional economies are more important than seems generally to be recognized. The design of a well-functioning intergovernmental fiscal system is key to many of the major reform goals of the transition economies—macroeconomic stability, privatization, and the social safety net.

Decentralization and Democracy in Eastern Europe: A Sceptical Approach

The author focuses on the link between local government decentralization and democracy in Eastern Europe. It is shown that decentralization is a multidimensional concept and that actual local government systems can be positioned differently on each dimension (functions, control, and finance) depending on the implicit model of local government. Formal and substantive definitions of democracy are distinguished and some conventional measures examined; it is concluded that decentralization and democracy do not necessarily go together. The degree of decentralization and implicit models of postsocialist local government in Eastern Europe are then outlined, with a focus on the contrast between Budapest and Moscow. The development of social movements in the two capitals is taken as an index of substantive democracy and is shown to be influenced not only by the extent of decentralization but also by other features of the local political context. This illustrates the earlier argument that the relation between decentralization and democracy is an empirically variable one rather than a necessary one.