Impact of Economic Crisis on Municipal Budgets in the Czech Republic

By Spacek, David; Dvorakova, Petra | European Research Studies, January 2011 | Go to article overview

Impact of Economic Crisis on Municipal Budgets in the Czech Republic


Spacek, David, Dvorakova, Petra, European Research Studies


1. Introduction

Public budgets have gone through many changes since the fall of the communist regime and establishment of the Czech Republic. One of the most remarkable was the territorial public administration reform implemented since 1990. During the reform three basic types of municipalities were created each of which is distinguished by an extent of state administration (i.e. powers delegated from the central state administration into "delegated powers" responsibilities of municipalities by legislation) among others. Municipalities have performed in a relatively stable economic environment since the reform and have not face a significant economic decline yet. The situation has changed in 2008 or rather 2009, when the Czech Republic was affected by the economic slump. Its impact on individual levels of public budgets has been different. While the central government experienced a huge accumulation of the state deficit and consequently of the state debt, lower levels of government (regional and municipal) did not have so serious problems with their budgets based on their economic results from 2009 (Thalassinos et al 2010).

The aim of the paper is to monitor impact of the economic crisis on the Czech municipal budgets in more depth detail and to evaluate how selected municipalities with different level of delegated state power dealt with economic slump from the financial perspective.

The paper has a descriptive and an analytical part. First part of the paper summarizes the reform of municipal administration in the Czech Republic and introduces Czech municipal budgets with specification of their activities and finance. Then the overall impact of the economic crisis on the Czech municipal budgets is outlined. The last part is dedicated to an analysis of budgetary aspects of selected municipalities with different level of delegated state administration in connection with the economic slump. Discussion of outcomes and recommendations are stated in the conclusion of the paper.

2. Territorial Public Administration Reform and the System of Fiscal Federalism in the Czech Republic

Czech public administration reform started after the fall of the communist regime in November 1989. The phases of reform influenced the implemented set of instruments which were supposed to increase the efficiency of public administration. Initially, the main aim of the reform was the renaissance of democracy and democratic values in the legislation and, particularly, in the psychology and life of the society. This democratization of the legal and policy-making rhetoric went hand in hand with (re)development, empowerment and stabilization of the institutional system of territorial self-government accompanied by the search for the adequate form of fiscal federalism. The decade after the change of regime, which was not the one-off, but continual process, brought the establishment and relatively high (particularly political and institutional) stability of municipal public administration and its system.

The first post-communist decade established features of municipal administration which are still valid. The first post-revolution act on municipalities from 1990 brought a fundamental change in territorial public administration according to Czech administrative historians (e.g. Cechak, 2004). It followed the modern principles established already in the second half of the 19th century in the legislation of Habsburg monarchy and distinguished state administration (i.e. deconcentrated central administration responsibilities) and self-government and replaced the centralized hierarchical system of "unitary state powers" as exercised by national committees during the communist period (1948-1989). Municipalities were supposed to take on the most of responsibilities (as well as liabilities) of former local or municipal national committees. The act established a system of one-tier territorial self-government (municipal councils became the basic and the only one level of territorial self-government) and also established what is called as joined model of territorial public administration in the Czech administrative literature (the same body of a municipality may exercise not only self-governmental tasks, but also state administration if authorised by law). …

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