Problems of Fiscal Equalization and Decentralization of Local Governments in Azerbaijan
On December 2004, Azerbaijan witnessed the second term of elections for municipalities. Unfortunately, it seems that the country lost the chance to design appropriate institutions for local governing over the last five years. Although current legislation envisages that municipalities of poor financial capacity should receive aid from the state budget, no principle for its distribution is provided. In addition, it is noteworthy that a decree was needed to tackle the major problems municipalities faced. This paper proposes reforms to improve the fiscal capacity of the municipalities, including amendments of the taxing principle, tax base and tax collection, as well as modernization of a government subsidy allocation mechanism. The last entails consideration of expenditure needs and the poverty level of the municipalities.