Manifestations of Subnational Fiscal Federalism in Lithuanian Local Self-governments

The manifestations of fiscal federalism are analyzed at the subnational level in order to enhance the fiscal capability of municipalities. However, the municipalities usually lack the incentive to compete when providing packages of public services to the public as the revenue of municipalities is restricted by national level laws and remains highly dependent on government grants. The aim of this article is to determine the manifestations of the theory of fiscal federalism when assessing the fiscal capability of municipalities. The analysis of Lithuanian municipalities’ data for the five-year period reveals the municipal level situation. Research methods include the analysis of legislation and statistical data, content analysis, and cluster analysis. It has been found that there is no clear agreement at the interinstitutional level (from the highest to municipal level). Fiscal competition among the municipalities leads to a more efficient distribution of funds which can also have a positive impact on regional economic growth in the long term. Insufficient data at self-government level is a precondition for further separation among municipalities as rich municipalities keep getting richer while economically weak municipalities keep getting poorer.