Intergovernmental transfers in Armenia : is there a need for revision of financial equalization mechanisms?

Abstract

Currently, small and financially weak communities in Armenia continue to face growing difficulties. The aim of the study is to look at and analyze the system of intergovernmental transfers in Armenia, mainly to study the “Law on Financial Equalization” and the need for its revision. The study uses quantitative and qualitative methods. Tools for collecting data include secondary and legal document analysis, statistical data analysis, and in-depth interviews. The current paper studies the role of equalization subsidies on the financial viability of communities in Armenia, whether the existing system allocates sufficient resources to the communities in financial need, and helps to address the lack of financial resources. In addition, it tries to identify the impact of equalization subsidies on recipient communities provided based on the acting law, and the impact of possible amendments to the law on the community life in Armenia. The main conclusion is that insufficient financing of municipalities remains an issue. Furthermore, the acting law does not ensure the harmonized development of communities; rather it hardly covers mandated responsibilities. In addition, suggested changes in the acting law will help to mediate polarization between communities with various financial capacities in Armenia.