The structure of revenue sharing between the various layers of governments affects the public sector’s incentives for providing infrastructure for private business development. The recent experience of Belarus has been that any change in local government’s own revenues is almost entirely offset by changes in shared revenues. Local governments are unable to benefit from an increase in the local tax base and, therefore do not see any interest in expanding it. This situation leads to stricter business regulation and lower growth compared with a system with greater fiscal incentives, and has a negative effect on the efficiency of local provision of public goods. A reform of the existing financial system for local governments is required to provide some degree of autonomy for local self-government, with the aim of enhancing local governments’ capacity to finance local development.