Existing reality
One of the main obstacles to local development in the Republic of Moldova is the high degree of fragmentation of city administrations, aggravated by the low level of local fiscal decentralization.
In other words, we have many small city administrations with insufficient own revenues to address complex infrastructure and local development problems. As a result, city administrations become dependent on transfers from the state budget, according to the analytical note prepared by Expert-Grup analysts.
In turn, this phenomenon of fiscal centralization generates two main problems. The first is related to the distortion of the motivation of city administrations: instead of caring about the growth of the local economy and, consequently, the local tax base, they focus on receiving transfers from the state budget, which over time increases dependence on the Center and fuels the phenomenon of political clientelism.
The second problem is related to the chronic lack of resources to solve local problems due to the unpredictability of the transfer system and the centralized mechanism of public finance management, which often does not correspond to the real needs at the local level.
Unfortunate statistics
According to the 2024 census, more than a third of town halls have a population of less than 1,000 inhabitants and about half have between 1,000 and 3,000 inhabitants.
According to the 2025 data, the average share of taxes and fees in local revenues was only 23%, with the majority of budgets generated by transfers from the central budget. In addition, the smaller the mayor’s office, the more dependent it is on transfers from the central budget and the smaller the local tax base (the share of taxes and fees in local government revenues is only 20% in mayoralties with less than 1,000 inhabitants).
Thus, the reform of merging mayoralties by encouraging voluntary mergers and introducing a regulatory minimum threshold of 3,000 inhabitants per mayor’s office, announced by the government on April 8, 2026, seems justified.
But is a threshold of 3,000 inhabitants optimal and is this reform sufficient to improve the ability of mayoralties to solve local problems and participate more actively in local development?
The experts have attempted to answer these questions based on statistical and econometric analysis in order to provide a sound analytical framework for the debate on the relevant reform.
Can amalgamation of municipalities contribute to local development?
A simple correlation between population size and a municipality’s local tax base (measured as the share of tax revenues in total revenue at the mayor’s office level) indicates a clear positive statistical relationship. As a result, larger municipalities tend to have more of their own revenues that can be allocated to local development.
However, the relationship between municipality size and local tax base is not linear: a larger municipality does not automatically mean a stronger municipality, as there are also communes with larger populations where the share of taxes in total revenue is lower than in smaller municipalities.
“We are dealing with heterogeneity in the observations, which requires a careful approach to the reform under consideration. The correlation between population size and local tax base weakens as we exclude from the dataset large municipalities (with more than 6,000 inhabitants), very small municipalities (with less than 500 inhabitants) and, especially, if we analyze only municipalities with between 1,000 and 4,000 inhabitants, which represents 55% of the total,” the analysts report.
Thus, population size may contribute to municipal performance, but it is not a major factor. Moreover, it seems that there are other, non-demographic factors that may play a much bigger role in local development.
Fiscal decentralization is the most important factor
“Econometric analysis confirms the importance of municipal consolidation to improve municipal efficiency, but fiscal decentralization plays an even more important role. We tested several econometric regression models to obtain the best model that explains which factors can contribute most to local development. In this sense, local development was measured by the share of local revenues in the total revenues of urban administrations. Thus, it is positively influenced by population size, but it is even more positively influenced by taxes per capita received by city governments, and negatively by transfers from the state budget per capita,” Expert-Grup analysts say.
The estimated regression is non-linear with respect to population, which means that there is a minimum population threshold below which no municipality can be efficient or capable of managing an adequate local tax base.
The negative coefficient of the population variable reflects the fact that when population is low, an increase in the size of the administrative unit does not automatically lead to improved fiscal performance. This result only indicates that there are insufficient economies of scale in small units, which are compensated only after exceeding a critical population threshold.
1000 inhabitants is the critical point
The critical threshold in this sense is estimated at 1,000 inhabitants per municipality – such territorial entities show low fiscal efficiency, virtually no local tax base and remain permanently dependent on transfers from the state budget.
Thus, the threshold of 1,000 people is not the minimum functional threshold for municipalities. From this tipping point, the local tax base begins to grow, dependence on transfers decreases, and administrative capacity improves.
The above minimum threshold has two main implications for territorial administrative reform:
– The minimum threshold announced by the government is justified;
– the hypothesis that large mayoral districts are a priori efficient and effective is refuted.
First, the minimum threshold of 3,000 residents per mayoral district announced by the government on April 8, 2026, when the official reform concept was presented, is justified. Thus, the minimum threshold of 3,000 inhabitants set by the government provides a certain reserve of efficiency compared to the minimum threshold defined above.
In addition, the demographic dynamics manifested in the increasing migration of the population from villages to cities are taken into account. Namely, a significant proportion of mayoral districts, which now have 1500-2500 inhabitants, are likely to continue to shrink and thus fall below the minimum efficiency threshold.
Second, the estimated threshold is lower than 2/3 of mayoralties, which contradicts the hypothesis that large mayoralties are a priori effective and efficient.
Conclusions and recommendations
Experts insist that the consolidation of mayoralties should be complemented by a large-scale reform of fiscal decentralization.
Statistical and econometric analysis clearly demonstrates that the excessive fragmentation of city administrations represents a serious structural barrier to local development in Moldova, but population size, while important, is not a determinant of the efficiency of local budget expenditures.
The results indicate the existence of a minimum functional threshold of about 1000 inhabitants, below which urban administrations are structurally unviable and dependent on transfers, which fully justifies the unification reform and even confirms the adequacy of the 3000 inhabitants threshold proposed by the government.
At the same time, the analysis shows that once this threshold is exceeded, an increase in population does not automatically guarantee efficiency, and changes in the tax base are mainly determined by fiscal and institutional factors, in particular the ability to collect taxes and the level of dependence on transfers.
In this context, the government should approach territorial-administrative reform in a comprehensive manner.
First, priority should be given to amalgamating municipalities below a critical functional threshold, while avoiding mechanical or excessive amalgamation that will not bring certain benefits.
Second, the reform should be complemented by deepening fiscal decentralization, stimulating municipalities’ own revenues, reducing dependence on transfers, and creating mechanisms to stimulate local economic development.
Third, governance efficiency should be improved, including by optimizing personnel costs and strengthening institutional capacity at the local level.
In conclusion, the goal of the reform should not so much be to create larger municipalities per se, but rather to create viable municipalities that are fiscally autonomous and capable of generating local development. Therefore, the success of the reform will depend not only on territorial reorganization, but above all on the ability to make the local government an active participant in economic development.
