Every local and regional self-government unit is financed by tax revenue, the support and by its own and assigned revenue, according to specific regulations. If the capacity od the generated tax revenues is lower than reference value, it shall lead to fiscal equalization, Fiscal decentralisation referes to a transfer of decision making about the allocation of public revenues on individual governments. Fiscal decentralisation fosters competition among lower political- territorial units. Each of the units will strive to meet the requirements/answer to the needs of its residents, in order to stop the potential migrations into units with better insured public goods, thus allowing the citizens to enjoy the goods not insured within their residence unit. Nevertheless, this can only be achieved if there is a healthy competition between the local and regional self government units. There is a number of underlying regulations for establishing fiscal relations between the local and regional units on the Republic of Croatia. The central framework od the European Charter of Local Self- Government is based on the idea that Europe needs to be built/ developed on the pronciples of democratisation and decentralization of power, with the local self-government units being one od the main foundations, giving the citizens the opportunity to exercise the direct right of managing public affairs.