Regional economic potential has a substantial impact on the financial health of local governments. Gaining insight into the impact of these factors on municipal revenues is crucial for formulating efficient fiscal strategies and promoting long-term sustainable development. This study investigates the influence of important economic sectors on local budgets by employing sophisticated econometric models and analyzing panel data from 13 areas of Uzbekistan spanning from 2014 to 2023. The study employed econometric techniques like Pooled Ordinary Least Squares (POLS), Fixed Effects Estimator (FEE), and Random Effects Estimator (REE). The study examines the correlation between municipal budget revenues and the contributions made by the agricultural, industrial, and service sectors. The findings indicate that the service sector has a substantial impact on municipal revenues, as even a 1% growth in this sector results in a notable rise in tax revenues. In contrast, agriculture has a detrimental impact on income, and the industrial sector has a moderately beneficial impact. The REE model, which was validated using the Hausman test, was determined to be the most suitable. These findings emphasize the significance of comprehending regional economic dynamics in order to optimize local budgets and formulate focused fiscal strategies for sustainable development.