Implementation of sustainable development policy in the context of financial decentralization: the experience of EU countries

Martynenko V.V., dr.sc.(econ.), professor, professor at the department of public finance,

State Tax University (Irpin)

Мартиненко В.В., д-р екон. наук, професор, професор кафедри публічних фінансів, Державний податковий університет (м. Ірпінь)

Setting the problem. Implementing sustainable development policies is a pressing issue in today's globalized world. Solving this problem requires the use of creative approaches, new technologies and financial resources. The conditions of financial decentralization are one of the key factors that influence the implementation of sustainable development policy. In this context, the experience of European Union (EU) countries that have gone through financial decentralization and successfully implemented sustainable development policy objectives at the level of territorial units may be useful for Ukraine. That is why studying the experience of EU countries in implementing sustainable regional development policy in the context of financial decentralization is relevant for Ukraine, which has been implementing decentralization reform since 2014 and has been participating in the global process of achieving the Sustainable Development Goals (SDGs) since 2015.

Analysis of the latest research and publications. In recent years, a significant number of scientific works both in Ukraine and abroad have been devoted to the problems of implementing the state policy of sustainable regional development in the context of decentralization of power. The decentralization reform in Ukraine has been underway for over 9 years and was launched with the ratification of the EU - Ukraine Association Agreement on 16 September 2014. In addition, since 25 September 2015, Ukraine, along with other UN member states, has been a participant in the global process of ensuring the SDGs. Among the authors whose works were published under the above circumstances, the following should be highlighted: M. Fabus et al. [1], D. Malchykova et al. [2], M. Onofrei et al. [3], N. Mozhaikina and I. Ostrovskyi [4], I. Irtyshcheva et al. [5]. In addition, this study is a continuation of the author's previous work on solving the problems of financial decentralization and ensuring regional development [6-8].

Despite the considerable number of research papers on the implementation of sustainable development policy, the impact of local finance on the achievement of the SDGs in the context of financial decentralization and the use of European experience remains insufficiently studied.

Setting the objective. The purpose of the study is to assess the impact of financial decentralization on the implementation of sustainable development policy by local authorities in Ukraine, taking into account the experience of EU countries. To achieve this goal, it is necessary to answer the following question: whether the effectiveness of the implementation of the SDGs in Ukraine at the regional level has been achieved in the context of financial decentralization and limited local budget resources. decentralization local authoritie

The main material of research. The process of decentralization of power in European countries began in the early second half of the twentieth century and by 1985 was formalized in the European legal act “European Charter of Local Self-Government” [9], ratified by Ukraine on 15.07.1997. It was this international document that became fundamental in Ukraine's movement towards decentralization since 1998.

The experience of reforming local authorities in the EU countries proves that decentralization of state power has played a key role in the further democratization of society, ensuring a gradual transition to new institutions based on the initiative, freedom and responsibility of communities in general and each citizen in particular [10]. Similar processes took place in Ukraine from the beginning of the decentralization reform in 2014 until the start of the large-scale invasion on 24.02.2022, when local authorities, having received expanded powers and competencies to make decisions for the development of their communities, also received fiscal levers to gain financial autonomy [11].

Obviously, the decentralization reform in Ukraine was one of the conditions of the Association Agreement with the EU, but it also laid the foundations for communities to confront the challenges of the Russian-Ukrainian war, which had sufficient powers to urgently make the necessary decisions and solve priority problems with internally displaced persons, processing humanitarian aid, raising funds for the needs of the defence forces, etc.

In parallel with the decentralization process, the concept of sustainable development has been put into practice in the world, and it was finally formalized at the Sustainable Development Summit (September 2015, LXX session of the UN General Assembly). The summit adopted the resolution “Transforming our world: The 2030 Agenda for Sustainable Development.” Thus, 17 SDGs were approved, detailed by 169 targets to achieve them. Ukraine has developed a national system in which the 17 SDGs are detailed into 86 targets, the achievement of which is monitored based on the calculation of 183 indicators [12].

Based on the global movement to achieve the SDGs, the EU's regional policy was based on the management of sustainable development of territories with the active participation of the state in its implementation. That is, communities, within the limits of their powers, allocated funding in local budgets to achieve the SDGs and implemented state regional programs on the ground. The EU has also developed a regional policy based on the concept of partnership and subsidiarity to set a common integration goal of regional policy, which is to ensure sustainable development of territories and is detailed by program objectives: assistance in structural levelling and development of economically backward regions; restructuring of old industrial areas; combating unemployment; social adaptation of vulnerable groups of the population; reforming the agrarian policy of the territories on the basis of a clean environment; structural alignment of rural areas [4, p. 15].

M. Onofrei et al. conducted a large-scale study of the impact of decentralization on sustainable regional development based on statistical data for 2001-2019 in 21 EU member states, including the dynamics of their own revenues and expenditures on sustainable development and their structure in local budgets. They proved that countries with the highest (Denmark, Finland and Sweden) and higher (Germany, the Netherlands, France and Poland) levels of fiscal decentralization have been more successful in sustainable development than countries with low levels of decentralization (Malta, Cyprus, Greece and Ireland). At the same time, there is a direct high-density relationship between decentralization and sustainable development in EU member states [3].

The regional context for achieving the SDGs in Ukraine is presented in table 1.

Table 1

Responsibility of local authorities for achieving the SDGs in Ukraine

Source: Compiled and classified according to the data in [12; 13, pp. 7, 12-13]

Based on the classification of the SDGs presented in table 1, we will study the impact of financial decentralization of local authority on sustainable regional development, taking into account the experience of EU countries. To do this, we first calculate indicators that reflect the state of decentralization in Ukraine. Next, the impact of financial decentralization indicators on the relevant SDGs indicators is assessed using the pairwise correlation coefficient, which can take values from -1 to 1 and is calculated in Excel using the PEARSON function with the following syntax:

r =PEARSON (array 1; array 2), (1)

where array1 is a mandatory argument, a set of values of the independent variable (financial decentralization indicator);

array2 is a mandatory argument, a set of values of the dependent variable (SDG indicator).

It should be noted that an adequate and reliable assessment of the impact of financial decentralization on the achievement of the SDGs is possible under the following conditions: the directions of the relationship between the indicator and the intended purpose of the indicator should coincide, i.e., if the indicator is a stimulant, the correlation coefficient should be r > 0, if the indicator is a discourager, r < 0; the stochastic relationship between the indicator and the indicator should be of high density, i.e.

r Є [-1.0;-0.5] ^ [0.5;1.0]; if the task (sub-objective) involves monitoring several indicators, the impact of financial support on its achievement is assessed by the indicator with the highest coefficient values, which are also closest to meeting the 2 preceding conditions.

Thus, based on formula (1), we have preliminarily calculated the indicators reflecting the state of decentralization in Ukraine in 2015-2021 (table 2).

Table 2

Formation and distribution of Ukrainian local budgets' financial resources indicators in 2015-2021

Source: Compiled and calculated based on the data in [14, pp. 9-10]

The data in Table 2 shows that in 2015-2021, Ukraine experienced a general increase in the level of financial decentralization. Thus, in 2021, local budget expenditures were covered by own revenues by 2/3, while in 2015 - only by 43 %; the share of local authorities' own financial resources reached 65.1% by the end of 2021 (+24.2% compared to 2015). As of the end of 2021, the volume of financial resources of local authority in Ukraine amounted to 35 % of consolidated budget revenues, with the share of local authority's own financial resources amounting to 12.2 %.

Using Formula (1), we determine the stochastic relationship between the indicators of financial decentralization (see Table 1) and the corresponding indicators of the SDGs according to the data given in [12]. The results of calculating the numerical values of the pairwise correlation coefficients for the six SDGs, which are the responsibility of local authorities in Ukraine, are summarized in table 3.

Table 3

Results of the assessment of the stochastic relationship between financial decentralization indicators and SDGs indicators

* The numbering of the SDGs targets is taken from Table 1.

Source: Excel calculations based on data from Table 1 and [12], using Formula (1)

Table 3 does not contain tasks 3.1; 3.5; 3.9; 4.3; 10.5; 11.6; 16.4; 16.7, which is due to the low density of the stochastic relationship between all indicators within each task and decentralization indicators, and/or the inconsistency of the direction of such a relationship with the task vector: for example, the indicator is a stimulator, and the value of the pairwise correlation coefficient is negative.

Table 3 shows that in 2015-2021, the financing of poverty reduction programs by local budgets in the context of decentralization was effective and generally contributed to the achievement of SDG 1 “No poverty”, as 84% of the indicators met the evaluation requirements. The financial support for achieving the targets of SDG 3 at the expense of local budgets should also be considered satisfactory, as the increase in financial resources and strengthening of financial decentralization was accompanied by an improvement in the values of indicators, 62.5 % of which met the assessment requirements in 2015-2021. The impact of financial decentralization on the achievement of SDG 4 should be considered satisfactory, as the increase in financial resources and the strengthening of the financial autonomy of local authorities was accompanied by an increase in all indicators reflecting the quality of education. Overall, 64.3 % of the SDG 4 indicators met the assessment requirements for the period under review. The growing dynamics of the indicators of the level of decentralization of local authority also affected the dynamics of indicators of reducing inequality in society. Overall, 50 % of SDG 10 indicators met the evaluation requirements in 2015-2021. The financial support for achieving Target 11.5 should be considered satisfactory, since the increase in financial resources and the strengthening of the financial autonomy of local authorities was accompanied by an annual decrease in the volume of pollutant emissions from stationary sources. In total, 55 % of the indicators met the assessment requirements for the period under review. The impact of financial decentralization on the achievement of SDG 16 should be considered positive, as the simultaneous increase in financial resources and strengthening of the financial autonomy of local authorities was accompanied by a decrease in the prevalence of violence, an increase in the identification of victims of human trafficking and all forms of exploitation, mortality of children under the age of 5, an increase in the level of trust in the courts and access to justice, an increase in the area of restored territories affected by the Russian-Ukrainian war, etc. Overall, 50 % of the indicators met the evaluation requirements in 2015-2021.

Conclusions and further researches

The results of the analysis of the implementation of sustainable development policy in the context of financial decentralization, taking into account the experience of EU countries, allow us to draw a number of important conclusions.

Firstly, the implementation of sustainable regional development policy in the EU countries is ensured by providing for expenditures to finance the 17 SDGs, including in the context of regional programs, and in the context of expanding financial decentralization and local authority autonomy, the amount of funding and the responsibility of the authorities for the effectiveness of decisions taken to implement sustainable regional development policy are increasing.

Secondly, in Ukraine, in the course of the decentralization reform, local authorities, which manage 35 % of consolidated budget revenues, are responsible for achieving 35.3% of the SDGs, in particular: SDG 1 “No poverty”, SDG 3 “Good health and well-being”, SDG 4 “Quality education”, SDG 10 “Reduce inequality”, SDG 11 “Sustainable cities and communities”, SDG 16 “Peace, justice, and strong institutions”.

Thirdly, it is proved that the process of financing the achievement of the six SDGs of Ukraine at the regional level in 2015-2021 has provided the greatest progress in overcoming poverty, as 84 % of the strategic objectives (sub-goals) showed a positive trend; progress in achieving the strategic objectives of quality education was 64.3%, good health and well-being - 62.5 %, sustainable development of cities and communities and partnerships for sustainable development - 55 %, reduction of inequality, peace, justice and strong institutions - 50 %. Thus, progress in achieving the SDGs at the regional level is satisfactory.

Finally, a promising area for further author' research will be an assessment of the status of achieving the SDGs in Ukraine, taking into account the consequences of martial law in the context of the Russian- Ukrainian war.

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