The purpose of this article is to describe the role played by local government in the economic policy of the state. In addition, there will outlined the formation of local government units in Poland and worldwide. At the same time the author will present the both government’s impact regional development and the use of measures that local government receives from the state budget for investment. Imperfect mechanism for the redistribution of wealth is not conducive to galvanizing the development of local government’s units. Politics of funds transfer is inefficient and economically irrational. The financial resources provided from the State budget to local government units should, with the exemption of subventions and designated subsidies, be earmarked primarily to finance development objectives rather than the ongoing activities. So far, local governments undertake development activities primarily reaching for external funds derived primarily from grants or loans