Subject The article reviews the practice of Canada, the USA and Western European countries in using the ‘horizontal' inter-budget transfers and compares the international and Russian practice of using such transfers. Objectives The aim of the article is to analyze the inter-municipal and inter-regional economic cooperation, using ‘horizontal' inter-budget transfers, and to develop appropriate solutions for Russia. Methods Drawing on the comparative analysis, we review the practice of inter-municipal and inter-regional economic cooperation and ‘horizontal' inter-budget transfers in Canada, the USA and Western European countries. Results The analysis helped formulate major advantages and disadvantages of different forms of inter-municipal and inter-regional economic cooperation and solutions for Russia. We recommend introducing provisions to the Fiscal Code of the Russian Federation to govern the use of interregional transfers, and adopting a federal law on formation of contracts and agreements on inter-regional economic cooperation, as inter-budget transfers are applied as a tool for implementing these contracts and agreements. Conclusions and Relevance The performed analysis of the practice of inter-municipal and inter-regional economic cooperation and ‘horizontal' inter-budget transfers, and the identified advantages and disadvantages of their use contribute to the study of this financial mechanism in the Russian Federation to improve the quality of public finance management.