1 Marzanna Poniatowicz 1 , Ryta Dziemianowicz 2 , Agnieszka Alińska 3 LIMITED TAXING POWER OF LOCAL GOVERNMENT ENTITIES IN POLAND AS A DETERMINANT OF TAX COMPETITION AT THE LOCAL LEVEL Abstract The key determinant of revenue financial autonomy of local government is the local taxing power. A wider range of fiscal autonomy usually translates into a higher degree of financial autonomy of territorial entities in a given country. At the same time, the wider the range of powers of local authorities in terms of deciding on tax matters, the greater the probability of occurrence of tax competition at the local level. The aim of this article is to demonstrate that the scope of local taxing power of local government entities, unduly restricted in Poland, hinders the implementation of the local tax competition mechanisms in the sub-national government sector, which in turn prevents the optimal allocation of public goods provided by territorial communities. The authors of the paper propose the introduction of specific deregulation solutions and changes enhancing the tax autonomy of local governments, which in effect would create a more "friendly environment" for tax competition to function at the local level. Key words: sub-national government’s revenue and expenditure autonomy, taxing power, local tax competition JEL Classification: H71, H72, H77 1. Introduction The key value of the local government is financial independence (autonomy) of local government entities. Its scope is different in different countries and results from the advancement of the decentralization processes, being a derivative of the function performed by the public authority and the manner and proportions of their distribution between the central and local government. Financial independence is manifested in two basic aspects, i.e. revenue and expenditure. The key determinant of independence understood in the revenue aspect is undoubtedly local taxing power. In the opinion of the authors of this paper, its scope is too limited in Poland. This is in a way an effect of historical circumstances – for over forty years Poland was a socialist country, where there was no room for self-government and the state monopoly was omnipresent in all aspects, including taxation. It was only in 1990, along with the change of regime, when the first phase of decentralization reform was carried out and municipalities as local government entities were brought to life (their current number is 2479). In subsequent years, work began on introducing two additional levels of local government, i.e. poviats (currently there are 314 country districts and 66 townships) and local government voivodeships (16). In the current state of the law, generally only municipalities have their own revenue of a tax character. Both poviat and local government voivodeships are completely devoid of this attribute. It should be emphasized that the scope of local taxing 1 Associate Professor, University of Bialystok, Faculty of Economics and Management, Poland, e-mail: m.poniatowicz@uwb.edu.pl 2 Associate Professor, University of Bialystok, Faculty of Economics and Management, Poland, e-mail: r.dziemianowicz@uwb.edu.pl 3 Associate Professor, Warsaw Scholl of Economics, Collegium of Socio-Economics, Poland, e-mail: aalin@sgh.waw.pl