​Subsidiarity is an EU principle embodied in the EU treaties. As such, it is not applicable.

Overview of Fiscal Decentralisation

The legal framework on fiscal decentralization of Moldova is governed by the Law on Local Public Finance (2003, last amended in 2013); and the Law on Administrative Decentralization (2006, last amended in 2012).

Qualifying fiscal decentralization

The process of fiscal decentralization reform commenced with the passage of the legislation on public finance and decentralization in the early 2000s. Local government bodies however continue to suffer from an insufficient fiscal base. Local government revenues as a share of GDP are low; in 2013, they represented 1% of GDP. Own revenues (local taxes, local charges and fees) constitute 9% of municipal revenues. Shared revenues—from national taxes collected locally, such as personal income tax; corporate income tax; or VAT—in 2013 constituted 3.5% of GDP.
With the implementation of the school financing reform, half of expenditures at the local level are now at the top-tier level (rayons). Rayon governments accounted for two-thirds of subnational expenditures on education in 2013 (compared with less than 10% in 2012). The rayon governments also continue to dominate subnational expenditures on social benefits. This distribution of expenditures between top- and bottom-tier jurisdictions is consistent with mandated expenditure assignments.

Between 2008 and 2013, 78% of local capital expenditures were financed through budget fund transfers from central government; 5 % from transfers from special funds (Social Fund, Ecological Fund, Energy Efficiency Fund).

In Moldova, fiscal equalization mechanisms are in place to ensure the provision of mandatory services and based on a special formula stipulated in the Law on Local Public Finance. The mechanism takes into account factors like population size, number of pupils in schools, share of the elderly in municipal population, taxation capacity, etc. Equalization grants constitute roughly two-thirds of the total local revenues. State equalization grants intended for the first- and second-level local budgets go to the rayons (districts). In turn, the rayons set the amount of grants to the first level (towns and villages) in accordance with the legal equalization formula.

There is a structural problem in the financing of local governments. Originally, the equalization system at the central level was supposed to contain transfers from both the state budget and from regions with high revenues compared to expenditures. Since tax revenues do not keep pace with the costs of the mandatory services, the transfer component from rich regions has disappeared. Even the Chisinau capital city municipality, which earlier contributed to the system, now also receives equalization grants from the state budget.