The economic viability and sustainability of local municipalities and communities is dependent upon the municipalities’ ability to make effective long-term investments. The state has an important role in distributing and directing subsidies to ensure the most productive use of the national budget’s resources. Currently, the Estonian state does not have a consistent overview of the volume, structure and effectiveness of local municipalities’ investments. Also, the procedural and decision-making guidelines of state departments that receive applications and distribute investment subsidies have been very inconsistent or even non-existent over the years. Furthermore, a mechanism for supervising and evaluating investments has not been developed. Yet most importantly the investments of local municipalities do not often coincide with the aims of national development strategies, which could undermine regional development policies and strategy.
The research paper ‘Investment subsidies and financial management of local municipalities’ focuses on analysing investment subsidies’ application, distribution, implementation and supervision processes by addressing the following themes: (1) investment subsidies for local municipalities, (2) long-term planning and financial management in local municipalities, and (3) investment management, including the use of socio-economic criteria in evaluating investments. The project offers a framework for allocating investment subsidies by the central government, emphasising the importance of compiling multi-annual investment programs and applying socio-economic criteria in distributing financial resources among sectors and projects.