TAX EXPENDITURES VS. EQUALIZATION GRANT SCHEME IN RURAL MUNICIPALITIES IN POLAND

The purpose of this study is to determine whether and to what extent the studied municipal governments use their capabilities to shape taxes that constitute the basic tax income (PDP), used for the calculation of equalization amount of the general grants. The analysis will cover all rural municipalities in Poland (approx. 1570) in 2015 and 2017. The study will involve determining the relation of individual tax preferences and the amount of grant in studied municipalities; degree of replacing lost tax income with the grant, the correlation between the indicators of basic tax income and the size of tax reliefs used by municipalities. The conducted analysis clearly shows the existence of high dependency of rural municipalities from the mechanism of income supplementation based on PDP calculation per capita. There is a significant differentiation in the needs for income supplementing funds between the regions that results from the agricultural nature of some of them. There are important differences between rural municipalities in terms of the scale of applied tax preferences. The vast majority of municipalities resign from 10-40% of their potential income by applying the reductions in the top tax rates of the real estate tax and tax on means of transport.