Ahmad, Ehtisham, Daniel Hewitt, and Edgardo Ruggiero, 1997, “Assigning Expenditure Responsibilities” in Fiscal Federalism in Theory and Practice, ed. by Teresa Ter-Minassian (Washington: International Monetary Fund).
Arora, Vivek B., and John Norregaard, 1997, “Intergovernmental Fiscal Relations: The Chinese System in Perspective,” IMF Working Paper 97/129 (Washington: International Monetary Fund).
Bogetić, Željko, “Bulgaria” in Fiscal Federalism in Theory and Practice, ed. by Teresa Ter-Minassian (Washington: International Monetary Fund).
Norregaard, John, 1997, “Tax Assignment” in Fiscal Federalism in Theory and Practice, ed. by Teresa Ter-Minassian (Washington: International Monetary Fund).
Ter-Minassian, Teresa, and John Craig, 1997, “Control of Subnational Government Borrowing” in Fiscal Federalism in Theory and Practice, ed. by Teresa Ter-Minassian (Washington: International Monetary Fund).
These papers on selected issues and the statistical tables provide background information to the Staff Report on the 1997 Article IV Consultation and Request for Stand-By Arrangement (EBS/97/212, 11/25/97) for Estonia.
This note draws heavily upon a comprehensive study by the World Bank, Estonia: Financing Local Governments, Report No. 14925-EE, December 1995.
These figures are on an unconsolidated basis.
Unless indicated otherwise, the terms local government and municipalities are used interchangeably in this note.
The cities of Tallinn, Tartu, Kohtla-Jarve, Narva, Parnu, and Sillamae.
Consolidated general government expenditures in Estonia, at roughly 40 percent of GDP, are high and may seem to be at odds with a market-based economy and with a relatively low degree of importance attached to the state. However, it is important to keep in mind that the enlarged public sector activities in Estonia are very small compared to other transition economies.
These shares relate to local government expenditures excluding those financed by foreign borrowing through the central government.
This principle suggests that a given service should be offered by the level of government most closely representing the region that benefits from such service.
Revenues from the tax on water use are also shared with local governments (Law on Environmental Protection, effective 1993).
The local income tax may not exceed 2 percent of taxable income or 0.4 percent of premia for insurance companies.
A national car tax, superseding Tallinn’s local tax, is to be introduced in 1998; all of its revenues will be channeled to the local governments.
The corporate income tax was shared between the central and local governments in a ratio of 65:35 during 1990-92 before reverting back to the central government. The land tax was shared in a ratio of 63:35 during 1990-92, and of 50:50 during 1993-95.
The concentration of fiscal resources in Tallinn is to a large extent due to the concentration of VAT revenues collected from imports, and to a lesser extent, to the collection there of the personal income tax, the corporate income tax, and other indirect taxes.
Qualifying revenues included the land tax and shared revenues from the personal income tax plus transfers for compensation for exemptions; the latter were suspended in 1995. See World Bank (1995).
The data on local government borrowing remain weak. In the only systematic overview of local government borrowing, a survey launched by the Ministry of Finance in April 1996, the data are incomplete in that some municipalities do not respond; are not up-to-date; are not presented consistently (some municipalities include municipal enterprises, others do not); and are not consistent with banking data.
Based on banking data. Domestic bank loans outstanding to local governments amounted to EEK 478 million (3.4 percent of domestic bank credit) at end-June 1997.
In addition, the central government would undertake to pay at least as much in support to the merged local units as they received before the merger. Each municipality that becomes part of a larger unit would also be entitled to EEK 400,000 for merger costs, and EEK 8 per resident for the costs of new local elections.