STATISTICAL ASSESSMENT OF THE STRUCTURAL ADAPTATION OF UKRAINE’S LOCAL BUDGETS AFTER THE REALLOCATION OF MILITARY PERSONAL INCOME TAX IN 2021–2025

Abstract

The article examines the structural adaptation of Ukraine’s local budget revenues after the reallocation of personal income tax paid on the remuneration of military personnel to the state budget. The relevance of the study stems from the need to distinguish nominal revenue resilience from genuine local tax autonomy when a large revenue source is changed by a central-government decision. The empirical base covers 2021–2025 and combines official data on general-fund revenues excluding interbudgetary transfers, personal income tax, local taxes and fees, and the share of local budgets in consolidated budget revenues. The methodology is based on revenue decomposition, two compensation coefficients, a Herfindahl-type concentration measure with a complementary diversification index, and normalized indices of revenue dynamics and the relative fiscal weight of local budgets. The calculations show that in 2024 personal income tax revenues fell by UAH 31.9 billion, while non-PIT revenues increased by UAH 41.1 billion. The gross compensation coefficient therefore reached 1.29, indicating full nominal replacement of the observed PIT loss at the aggregate level. However, the increase in local taxes and fees compensated only 62.3 per cent of the shock; less than half of the compensating increase in non-PIT revenues was generated by locally anchored taxes. Revenue diversification improved markedly: the diversification index rose from 0.477 in 2022 to 0.577 in 2024 and remained relatively high at 0.566 in 2025. At the same time, the share of local budgets in consolidated budget revenues declined from 24.4 per cent in 2022 to 14.6 per cent in 2025, although general-fund own revenues increased from UAH 398.1 billion to UAH 514.1 billion. This divergence is interpreted as adaptive centralisation: the local level retains the capacity to rebuild nominal revenue flows while losing relative weight within the public finance system. A sensitivity test excluding the exceptional increase in Kyiv corporate profit tax reduces the gross compensation coefficient to approximately 0.97, demonstrating that aggregate full compensation is partly dependent on spatially concentrated regulatory effects. The practical value of the results lies in the justification of a multidimensional monitoring framework for intergovernmental fiscal policy and post-war decentralisation. The findings support a rule-based approach to PIT distribution, stronger property and land taxation, improved local tax administration, and compensation mechanisms that account for territorial exposure to wartime shocks rather than relying on aggregate revenue growth alone.