The Estonian Center for Applied Research CENTAR advised the Estonian Ministry of Finance on the development of a conceptual framework for local governments’ revenue base. We analysed the possibility of extending the local government equalisation fund so as to take into account location in the periphery and the need for updating the methodology of calculation used in the equalisation fund.
The aim of the equalisation fund is to equalise local governments’ financial capacity in providing local services. Allocation from the fund is based mainly on demographic distribution and differences in necessary costs in various age groups.
CENTAR advised the Ministry of Finance about updating the mathematical model using regression analysis.