When de-concentrating or decentralizing the state governance, politicians and civil servants face the problem of structuring of the state and local governance subsystems and identifying the limits of competence of institutions of different levels of public governance for the purpose of satisfying the social needs of the inhabitants as efficiently as possible and at the smallest costs. The article aims at analyzing the criteria for searching for the optimum combination of the competences of the state and local governance structures and the institutions, belonging to different levels of public governance. The economic literature provides conflicting criteria, i. e. subsidiarity, economy of scale, side effect and fiscal capacity of territorial governance subjects, by forming different combinations of which it is recommended to design the structure of the state and local governance and establish the competence of institutions, functioning on different levels of governance. Due to the economy of scale, characteristic of certain public services it is impossible to accurately identify the only optimum size of a territorial administrative unit: a region of benefit of a public service can be small however complex technologies or exceptional competences might be needed for provision of the service. The fiscal capacity of territorial governance subjects can be stabilized by consolidating several municipalities, by improving the fiscal capacities stabilization system and developing the balanced regions’ development policies. In order to implement the public governance functions as efficiently as possible, it is also necessary to appropriately structure the vertical dimension of public governance
