Public Choice and Financing Local Government Fiscal Reform in Albania

Public Choice and Financing Local Government Fiscal Reform in Albania

Jane Beckett-Camarata (Penn State – Harrisburg, USA)
Copyright: © 2018 |Pages: 12
DOI: 10.4018/978-1-5225-4177-6.ch015


The Albanian government has been decentralizing decision making. Central to decentralization is a system of intergovernmental revenue transfers, especially unconditional transfers. This study examines in what ways market conditions and policy options affect the central government and local government relationship. It analyzes unconditional intergovernmental revenue transfers between the central government and local governments to better understand Albanian fiscal decentralization. While the unconditional intergovernmental transfers during the time of this study were found to be stable, the fragmentation of local government units and the evolving role of the regions, could complicate decentralization. The lack of a clear path to local government debt and borrowing, coupled with the system of intergovernmental transfers, has resulted in few viable policy options for balancing local government budgets. A more diversified local revenue structure, coupled with the ability to borrow on the open market, could allow larger and better growth-enhancing public investments without additional budgetary pressures.
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Albania became an independent country after the dissolution of the Ottoman Empire, but was occupied by Italy in 1939 followed by Germany’s occupation during World War II. The Republic of Albania was established as a centralized state, with a unitary parliamentary republic established in 1991 after 46 years of Communist control. Although little authority was given to Albanian local governments during the Communist rule, the local governments shouldered high levels of fiscal and social responsibility. Albania has a population of 2.8 million and about 50% live in urban areas (INSTAT, 2011). Approximately 20% of the population is below 15 years old, about 70% is between 15-64 years old, and 10% of the population is 65 years old and above.

Table 1 displays the population of each Albanian county, the population density and the geographic size of the county in order to provide context for understanding the challenges in local fiscal autonomy.

Table 1.
Population by region
Counties/RegionsPopulationArea (km2)Density/km2


Source: (INSTAT Albania 2013 in Marku, 2015)

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