Using a novel municipality-level panel dataset, this paper investigates the empirical characteristics of vertical fiscal imbalances
in Moldova over the period 2005-2013. The results show that the extent of variation in vertical fiscal imbalances across 898
municipalities can be explained by the level of per-capita income, fiscal capacity, and demographic characteristics, as well
as the central government's fiscal behaviour that reflects fiscal constraints and policy preferences at the national level.
Political affiliation does not appear to be a significant factor, but the results show lower vertical fiscal imbalances when
the mayor of a municipality belongs to the same party ruling the central government. Altogether, these findings underscore
the need for well-coordinated reforms to create economies of scale, enhance revenue collection, and improve the composition
of spending at the subnational level.
Research group:Macroeconomics and European Economic Policy