Abstract
<jats:p>The financing of local self-government bodies (LSGs) in the Republic of Armenia is largely based on state grants, which includes the financial independence of communities. The study analyzes the structure of community budgets and revenues, emphasizing the impact of subsidies. Statistical and econometric analyses show that the population size, property tax, and other revenues of communities are maintained on subsidies, but the current financing system does not ensure sustainability. It is proposed to introduce targeted state grants to increase the independence of communities, replacing them with deductions from income tax, which will contribute to the fair distribution of resources and maintaining the financial stability of enlarged communities. At the same time, it is necessary to promote the development of financial management capacities of communities to ensure the efficient use of resources. Such changes can also contribute to increasing the level of autonomy and responsibility of local self-government bodies and will lead to the formation of more stable, self-sufficient communities, expanding the opportunities to promote local development.</jats:p>