ABSTRACT
Besides the decentralization of the economy in the former communist countries of Central and Eastern Europe, the decentralization of government itself became the main target of the reform process towards a democratic market economy. Efforts to decentralize governments started in most central and eastern European countries immediately after the initiation of the transition process. Examples are the creation of a two-level system of local government in Estonia already in 1989 or the law on local self-government in Hungary, which was one of the first laws approved by Hungary’s newly elected Parliament in 1990. In Russia the Federation Agreement, which was signed in July 1992, was the legal basis for the creation of subnational governments in the form of 89 administrative units (oblasts, okrugs, krais, Moscow and St. Petersburg as metropolitan cities with oblast status, and autonomous republics). Setting the legal base for fiscal federalism, defining the revenue sources for subnational local governments, however, proved to be much more delicate and time-consuming than mere territorial decentralization (and is not finalized yet). A number of reasons can be listed to illustrate the difficulties in this field.
