FISCAL DECENTRALIZATION AND MUNICIPAL SERVICE DELIVERY: EVIDENCE FROM NORTH MACEDONIAN MUNICIPALITIES

Povzetek

The impact of decentralization on municipal service delivery has is an area of growing interest, yet existing research remains limited and predominantly based on macro-level evidence. This paper contributes to the literature by examining the relationship between fiscal decentralization and municipal service delivery using a representative panel dataset of municipalities in the Republic of North Macedonia for the period 2015–2024. The econometric results indicate that fiscal decentralization, measured through the share of municipalities’ own-source revenues as an indicator of local fiscal autonomy, has a statistically significant positive effect on service delivery. However, the findings also reveal that inadequately managed operating expenditures can constrain future improvements in service efficiency. Moreover, greater financial independence, lower operating costs, and a controlled level of intergovernmental transfers enhance municipalities’ capacity to invest in long-term profitable projects. The results have important policy implications, particularly regarding the need to strengthen local revenue mobilization. The paper’s main contribution lies in its focus on service delivery efficiency rather than political outcomes, which have dominated prior studies.