This note examines the revenue and expenditure responses of local governments to the decrease in their revenues caused by the current economic downturn and by the Government of Serbias suspension of the transfer system put in place by the 2006 Local Government Finance Law (LGFL). The fiscal analysis shows that in response to the elimination of the transfer system, local governments significantly raised their own revenues. Most of this growth came from better collection of the property tax from households and better collection of the land use fee from businesses. Not surprisingly, local investment spending plummeted 26 percent between 2007 and 2009 and virtually disappeared among the worst-off local governments.
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