LOCAL FINANCE AND ECONOMIC-REFORM IN EASTERN-EUROPE

Extensive decentralization, both political and fiscal, is taking place in many of the countries newly emerging from behind the socialist vei l. Decentralization represents both a reaction from below to the previ ously tight political control from the center and an attempt from abov e to further the privatization of the economy and to relieve the strai ned fiscal situation of the central government. Although there are of course many variations in this process from country to country, some i mportant common elements arise from the similar institutional starting point in ah countries and the common transitional problems most of th em are facing. The on-going reforms of subnational finance in the tran sitional economies are more important than seems generally to be recog nized. The design of a well-functioning intergovernmental fiscal syste m is key to many of the major reform goals of the transition economies -macroeconomic stability, privatization, and the social safety net.