In 2004, after a long debate, the Czech government adopted a resolution that has introduced regulation of indebtedness of municipalities and regions by means of the so called debt service indicator. The relatively extensive debate among professional public concerning the purpose of this indicator, its construction and function has shown that in this sphere a large number of approaches can be applied. The appropriateness of the current indicator, its correspondence with theoretical principles and practical testing, as well as a more detailed analysis of the application of possible alternatives represent the main topics of this study.
The aim of the contribution is to transparently present the concepts and recommendations of the theory of fiscal federalism, and to compare them with the current legislative regulation of municipal indebtedness in the Czech Republic. At the same time, the contribution will summarize basic approaches that proved successful in regulation of municipal indebtedness in European countries, with special emphasis on post-communist states of Central and Eastern Europe. The result should be a basic evaluation of functionality of the current regulation model and suggestions for its further development in view of both theory and practice.