Local governments in the Western Balkan countries are dependent on central governments’ transfers, with low fiscal autonomy and limited efforts for own-source revenue mobilisation. The paper identifies that besides central government transfers, other significant factors in determining municipal own-source revenues include central and local public investment, current expenditures, human development index, and population density. Municipal own-source revenue is adversely affected by intergovernmental transfers, implying their de-incentivising effect in collecting local revenues. Local capital expenditure is a significant and strong determinant with a higher strength than central government investments, suggesting their importance for local fiscal autonomy. The human development index as a composite measure, unlike GDP per capita, positively affects the municipal fiscal autonomy.
North Macedonia can improve its economic growth by addressing the infrastructure gap by at least full capital budget utilisation. The outturn/execution of capital budget expenditures is low and in relative terms decreasing. The planned public finances for regional balanced development are also low and non-compliant with the legally set levels. A test of several hypothetical scenarios of full capital budget utilisation it is expected to positively contribute to the economic growth immediately and in the period to follow. Even if total debt increases in nominal terms, in relative terms the debt-to-GDP on a longer-run reduces through generating additional economic output.
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