Template-type: ReDIF-Paper 1.0 Author-Name: Douglas Sutherland Author-Workplace-Name: OECD Author-Name: Robert Price Author-Workplace-Name: OECD Author-Name: Isabelle Joumard Author-Workplace-Name: OECD Title: Fiscal rules for sub-central governments: Design and impact Abstract: Against a background of mounting demands for spending on services provided by sub-central governments, this paper examines how fiscal rules can help to ensure that pressure on resources is minimised and available resources are used efficiently. Drawing on questionnaire responses and other sources, this paper gives a detailed picture of fiscal rules for sub-central governments in place among a number of OECD countries. The paper examines the rationales for using fiscal rules, the various impacts fiscal rules can have, the factors making for effective implementation and the interactions between the various types of rule. It then constructs a number of synthetic sub-indicators designed to assess the extent to which sub-central government fiscal frameworks exhibit favourable characteristics for the achievement of fiscal objectives. It concludes with the construction of a composite indicator based on the combined impacts in the different areas of fiscal policy. Classification-JEL: C43; D78; H71; H72; H74; H81 Keywords: fiscal discipline, fiscal rules, indicators, Sub-central government Creation-Date: 2018-09-26 Number: 01 Handle: RePEc:oec:ctpaab:01-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: David King Author-Workplace-Name: Stirling University Title: Fiscal Autonomy of Sub-Central Governments Abstract: State and local governments in OECD countries have access to a variety of fiscal resources. Discretion over these resources varies considerably, and so does sub-central governments’ power to shape public service delivery. The design of fiscal autonomy affects sub-central government’s behaviour and determines outcomes like public sector efficiency, equity in access to public services or the long term fiscal stance. This paper provides data and interpretation on the fiscal resources of sub-central government in OECD countries. It presents a set of fiscal autonomy indicators such as revenue and expenditure decentralisation, tax autonomy, intergovernmental grants and the stringency of fiscal rules. In sum, the statistics show that taxes are still the most significant revenue source for subcentral governments but that only a part is under their effective control. Fiscal autonomy is further reduced by a high percentage of earmarked grants. The design of fiscal federalism varies considerably across countries, and factor analysis reveals almost no correlation between different fiscal autonomy indicators. Indeed, “fiscal autonomy” appears to have several dimensions. Classification-JEL: H71; H74; H77 Keywords: fiscal autonomy, fiscal federalism, intergovernmental transfers, local taxation Creation-Date: 2006-09-11 Number: 2 Handle: RePEc:oec:ctpaab:2-EN Template-type: ReDIF-Paper 1.0 Author-Name: Daniel Bergvall Author-Workplace-Name: OECD Author-Name: Claire Charbit Author-Workplace-Name: OECD Author-Name: Dirk-Jan Kraan Author-Workplace-Name: OECD Author-Name: Olaf Merk Author-Workplace-Name: OECD Title: Intergovernmental Transfers and Decentralised Public Spending Abstract: Intergovernmental grants are used in many countries to finance sub-national spending and to implement national policies. However, the governance of grants is complex, and practices vary widely across OECD countries. The aim of this article is to provide a study of grant design that will be useful to policy makers. The article attempts to integrate both theoretical and empirical insights from the fiscal federalism literature as well as information obtained directly from practitioners concerning their experiences with the implementation of different types of grants. A typology of grant is presented, as well as an overview of the purposes of grants. The article concludes with some principles of grant design and implementation issues. Creation-Date: 2006-09-11 Number: 3 Handle: RePEc:oec:ctpaab:3-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Olaf Merk Author-Workplace-Name: OECD Author-Name: Claire Charbit Author-Workplace-Name: OECD Author-Name: Lee Mizell Author-Workplace-Name: OECD Title: Fiscal Equalisation in OECD Countries Abstract: Fiscal equalisation is a transfer of fiscal resources across jurisdictions with the aim of offsetting differences in revenue raising capacity or public service cost. Its principal objective is to allow sub-central governments to provide their citizens with similar sets of public services at a similar tax burden. Fiscal equalisation can be seen as the natural companion to fiscal decentralisation as it aims at correcting potential imbalances resulting from sub-central autonomy. If sub-central governments had no fiscal power, no fiscal equalisation would be needed. Distinct fiscal equalisation arrangements first emerged during the 1940s and 1950s in a number of federal countries, and today most OECD Member countries have introduced some explicit or implicit fiscal arrangement that reduces fiscal disparities across jurisdictions. The significance of fiscal equalisation is highlighted not only by its extensive use in both federal and unitary countries, but also by the fact that its objectives and principles are often laid down in the constitution and hence form a central pillar of national fiscal policy. Creation-Date: 2007-09-05 Number: 4 Handle: RePEc:oec:ctpaab:4-EN Template-type: ReDIF-Paper 1.0 Author-Name: Lee Mizell Author-Workplace-Name: OECD Title: Promoting Performance - Using Indicators to Enhance the Effectiveness of Sub-Central Spending Abstract: On average, one-third of public expenditures in OECD countries occur at the sub-central level, a figure that has risen slightly over time. This is due, in part, to the decentralisation of competences for public services in many OECD countries. Not surprisingly, the efficiency and effectiveness of spending for public services are a concern for both central and sub-central governments. Various mechanisms are used to affect the efficiency and improve the effectiveness of sub-central spending. This report examines one tool that aims to do so: indicator systems for measuring and monitoring sub-central service delivery. Specifically, the report aims to assess if and how central governments use such systems, the critical choices they face when designing and implementing them, and the constraints under which the systems operate. Creation-Date: 2008-06-13 Number: 5 Handle: RePEc:oec:ctpaab:5-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Title: Market mechanisms in public service provision Abstract: This paper compares and analyses the use of market mechanisms in core sub-central policy areas, namely education, health care, transport, social protection, and environment. Arrangements like tendering, outsourcing, user choice and competition, user fees and performance-related funding can help to improve quality of service provision or lower its cost. With around 32% of total public expenditure and often wide-ranging spending powers, sub-central governments (SCG) have considerable leeway for improving their services by relying on market mechanisms. The decentralised and often fragmented nature of sub-central government poses some special challenges to efficient arrangements, however, and may require central government support or stronger inter-jurisdictional co-operation. And while market mechanisms are being harnessed ever more broadly, limits to a more extensive use have become apparent, particularly in the potential trade-off between greater efficiency and equity objectives, or between efficiency and sub-central accountability.. Classification-JEL: C43; D78; H71; H72; H74; H81 Keywords: fiscal discipline, fiscal rules, indicators, Sub-central government Creation-Date: 2018-09-26 Number: 06 Handle: RePEc:oec:ctpaab:06-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Oliver Petzold Author-Workplace-Name: OECD Title: Taxes and Grants: On the Revenue Mix of Sub-Central Governments Abstract: This paper analyses trends and driving forces in the revenue composition of sub-central government (SCG). Between 1995 and 2005 the share of SCG in total government spending increased significantly from 31 to 33 percent while the SCG tax share remained stable at around 17 percent, increasing SCG’s dependence on intergovernmental grants. While equal access to public services is the most common justification for such grants, the grant systems of most countries are much larger than required by equalization. Moreover, rather than smoothing out SCG revenue fluctuations over the cycle, grants often tend to exacerbate them. Finally, there is some evidence that grants reduce SCG tax effort, inflate SCG spending and increase SCG deficits and debt. Efficiency and accountability would call for a higher share of SCG spending covered by own taxes. However, that is not easy: increasing property taxes – the most suitable tax for SCG – usually meets with strong resistance. Tax sharing arrangements where central government cedes a part of its income or consumption tax revenue could help lift the SCG tax share without increasing the total tax burden. Classification-JEL: H42; H50; H77 Keywords: fiscal federalism, intergovernmental grants, local taxation Creation-Date: 2009-05-18 Number: 7 Handle: RePEc:oec:ctpaab:7-EN Template-type: ReDIF-Paper 1.0 Author-Name: Steffen Bach Author-Workplace-Name: OECD Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Dominik Wallau Author-Workplace-Name: OECD Title: The spending power of sub-central governments: A pilot study Abstract: This pilot study presents indicators that assess sub-central government (SCG) spending power by policy area. Traditional indicators – such as the share of SCG in total government spending – are often misleading as they underestimate the impact of central government regulation on sub-central spending patterns. In order to gauge true spending power, a set of institutional indicators is established, based on a detailed assessment of institutional, regulatory and administrative control central government exerts over various SCG policy areas. Results tend to confirm the limited discretion of SCGs over their own budget. Education in particular – the main SCG budget item in most countries – is strongly shaped by central government regulation. Federal countries tend to grant more spending power to SCGs than unitary countries. Classification-JEL: C43; D78; H71; H72; H74; H81 Keywords: fiscal discipline, fiscal rules, indicators, Sub-central government Creation-Date: 2018-09-26 Number: 08 Handle: RePEc:oec:ctpaab:08-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Josette Rabesona Author-Workplace-Name: OECD Title: The Fiscal Autonomy of Sub-Central Governments: An Update Abstract: This paper describes the progress that has been made since 2006 in establishing statistical databases on tax autonomy and intergovernmental grants, aiming to better understand sub-central finance and intergovernmental fiscal relations. The paper is divided into two parts: a first part on taxing power of sub-central governments, and a second part on intergovernmental grants. Some of the work presented here is an update of earlier activities carried out in 1999 and again in 2005. By now the Fiscal Network has time series for both tax autonomy and intergovernmental grants indicators. Most data were obtained through a questionnaire sent to OECD member countries in spring 2008, and data were again revised after the Fiscal Network meeting in December 2008. Creation-Date: 2009-06-10 Number: 9 Handle: RePEc:oec:ctpaab:9-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Oliver Petzold Author-Workplace-Name: OECD Title: Finding the Dividing Line Between Tax Sharing and Grants: A Statistical Investigation Abstract: Tax sharing and intergovernmental grants are two sub-central funding arrangements that are often difficult to disentangle. The dividing line is not drawn uniformly across OECD countries or across time, and rules established in National Accounts, Revenue Statistics and others give incomplete guidance. Moreover, tax sharing arrangements may differ according to how tax revenue is distributed across individual jurisdictions. In order to ensure that fiscal arrangements are recorded properly and on a comparable basis, a set of clear criteria to delineate them is required. This section presents the results of a test that was applied in order to find the dividing line a) between tax sharing and intergovernmental grants and b) between different categories of tax sharing. The test was performed using questionnaire responses and builds on earlier documents on the same topic presented to Fiscal Network Delegates in 2006 and 2008. Creation-Date: 2009-06-17 Number: 10 Handle: RePEc:oec:ctpaab:10-EN Template-type: ReDIF-Paper 1.0 Author-Name: Claire Charbit Author-Workplace-Name: OECD Title: Explaining the Sub-National Tax-Grants Balance in OECD Countries Abstract: Normative principles provide a relatively clear set of rules for the balance between grants and taxes (box 1 reviews the normative theory), but in practice a variety of types of tax-grant systems are observed in OECD countries, which do not all follow these rules. According to the theory, own-taxes should be the primary revenue source (technically for the last dollar of spending), while transfers should only be used as a supplementary revenue source to correct for externalities, act as an insurance buffer, or redistribute resources between regions (see OECD 2006a, 2006b). Besides, the theory wants tax bases for sub-national governments to be confined to immobile resources such as land and user fees. In practice, transfers often represent a large proportion of sub-national governments’ revenues, and many countries use income taxes instead of property taxes at the sub-national level. Creation-Date: 2010-01-12 Number: 11 Handle: RePEc:oec:ctpaab:11-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Monica Brezzi Author-Workplace-Name: OECD Author-Name: Claire Charbit Author-Workplace-Name: OECD Author-Name: Mauro Migotto Author-Workplace-Name: OECD Author-Name: José Maria Pinero Campos Author-Workplace-Name: OECD Author-Name: Camila Vammalle Author-Workplace-Name: OECD Title: Fiscal Policy Across Levels of Government in Times of Crisis Abstract: The world is recovering from the worst economic and financial crisis since the Great Depression. The recovery will probably be shallow and government deficits could remain very large over the next few years in a number of countries. The crisis has a negative impact not only on central governments, but also on sub-national governments. While the situation varies from country to country, depending on the institutional environment, types of revenue sources and spending responsibilities, an increasing number of sub-national governments are facing budget imbalances, as the economic slump is putting upward pressure on spending, while pushing down tax revenues. Creation-Date: 2010-03-05 Number: 12 Handle: RePEc:oec:ctpaab:12-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: José Maria Pinero Campos Author-Workplace-Name: OECD Title: Tax Competition Between Sub-Central Governments Abstract: Tax competition is the strategic interaction of tax policy between sub-central governments (SCG) with the objective to attract and retain mobile tax bases. Tax competition rests on firms’ and households’ willingness and ability to shift the tax base – i.e. profits, capital, income, consumption etc. – after SCG tax policy changes. There is no tax competition without tax base mobility. The views on the benefits and costs of tax competition differ widely: while some consider that tax competition brings sub-central fiscal policy closer to citizen’s preferences, increases the efficiency of the public sector and avoids tax and spending excesses, others argue that tax competition leads to a distorted tax structure, to growing tax rate disparities and to an under-provision of publicly provided services. The degree of tax competition is likely to vary across countries and over time and is strongly shaped by the fiscal and institutional framework. Tax competition is not only an issue for federal countries, but also for unitary countries where local governments often have far-reaching tax autonomy. Creation-Date: 2011-04-19 Number: 13 Handle: RePEc:oec:ctpaab:13-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Title: Decentralisation and Economic Growth - Part 1: How Fiscal Federalism Affects Long-Term Development Abstract: Intergovernmental fiscal frameworks usually reflect fundamental societal choices and history and are not foremost geared towards achieving economic policy objectives. Yet, like most institutional arrangements, fiscal relations affect the behaviour of firms, households and governments and thereby economic activity. This paper presents empirical research on the potential effects of fiscal decentralisation on a set of outcomes such as GDP, productivity, public investment and school performance. The results can be summarised as follows: decentralisation, as measured by revenue or spending shares, is positively associated with GDP per capita levels. The impact seems to be stronger for revenue decentralisation than for spending decentralisation. Decentralisation is strongly and positively associated with educational outcomes as measured by international student assessments (PISA). While educational functions can be delegated either to sub-central governments (SCG) or to schools, the results suggest that both strategies appear to be equally beneficial for educational performance. Finally, investment in physical and – especially – human capital as a share of general government spending is significantly higher in more decentralised countries.

Décentralisation et croissance économique: Partie 1 : Comment le fédéralisme budgétaire affecte le développement à long terme
Les cadres budgétaires intergouvernementaux sont habituellement le reflet de choix sociétaux fondamentaux ainsi que de l’histoire, et n’ont pas pour vocation première d’atteindre des objectifs de politique économique. Pourtant, comme la plupart des modalités institutionnelles, les relations budgétaires influent sur le comportement des entreprises, des ménages et des pouvoirs publics et, partant, sur l’activité économique. Le présent document fait une synthèse des études empiriques consacrées aux effets potentiels de la décentralisation budgétaire sur une série de résultats comme le PIB, la productivité, l’investissement public et les performances des établissements scolaires. Ces résultats peuvent être résumés comme suit : la décentralisation, mesurée en pourcentage des recettes ou des dépenses, est corrélée positivement avec le niveau de PIB par habitant. L’impact semble plus marqué pour la décentralisation des recettes que pour celle des dépenses. La décentralisation semble être fortement et positivement corrélée avec les résultats de l’éducation tels que mesurés par le Programme international pour le suivi des acquis des élèves (PISA). Si les fonctions éducatives peuvent être déléguées soit aux échelons infranationaux de l’administration, soit aux établissements scolaires, les résultats donnent à penser que les deux stratégies semblent également bénéfiques pour les performances des écoles. Enfin, l’investissement dans le capital physique mais, plus particulièrement, dans le capital humain exprimé en part des dépenses des administrations publiques, est nettement plus élevé dans les pays décentralisés. Classification-JEL: H10; H70; I22 Keywords: décentralisation budgétaire, décentralisation de l’éducation, dépenses publiques, education decentralisation, fiscal decentralisation, fiscal federalism, fédéralisme budgétaire, public spending Creation-Date: 2013-06-03 Number: 14 Handle: RePEc:oec:ctpaab:14-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Balázs Égert Author-Workplace-Name: OECD Title: Decentralisation and Economic Growth - Part 2: The Impact on Economic Activity, Productivity and Investment Abstract: This paper analyses the relationship between fiscal decentralisation and economic activity. Like other institutional arrangements, fiscal decentralisation affects firms, households and public entities, and the way they save, invest, spend or innovate. This in turn may have considerable consequences for the long-term growth potential of a country. Based on a set of growth regressions, the results suggest that the relationship between fiscal decentralisation and GDP per capita, productivity or human capital is positive and statistically significant, while the relationship with investment is insignificant. Doubling the sub-central tax or spending share (e.g. moving from a decentralisation ratio of 15 to 30%) is associated with an increase of GDP per capita by 3% on average. Revenue-based decentralisation indicators (e.g. decentralisation of tax revenue or tax autonomy) deliver results both statistically and economically (larger coefficients) more significant than spending-based indicators. The results vary little between federal and unitary countries in general. Intergovernmental transfers tend to be negatively associated with GDP per capita. Finally, the relationship between decentralisation and GDP per capita is non-linear, with results suggesting that returns to decentralisation are decreasing.

Décentralisation et croissance économique: Partie 2 : Impact sur l'activité économique, la productivité et l'investissement
La présente note analyse la relation entre la décentralisation budgétaire et l’activité économique. À l’instar d’autres modalités institutionnelles, la décentralisation influe sur les entreprises, les ménages et les entités publiques, ainsi que sur la manière dont ils économisent, investissent, dépensent ou innovent. Cela peut à son tour avoir des conséquences considérables sur le potentiel de croissance à long terme d’un pays. S’appuyant sur une série de régressions de croissance, les résultats conduisent à penser que la relation entre la décentralisation budgétaire et le PIB par habitant, la productivité ou le capital humain est statistiquement significative, alors que la relation avec l’investissement ne l’est pas. La multiplication par deux de la part des impôts ou des dépenses relevant des administrations infranationales (le ratio de décentralisation passant ainsi de 15 à 30 %, par exemple) est associée à une hausse du PIB par habitant de 3 % en moyenne. Les indicateurs de décentralisation fondés sur les recettes (par exemple la décentralisation des recettes fiscales ou l’autonomie fiscale) offrent des résultats plus significatifs statistiquement et économiquement (coefficients plus élevés) que les indicateurs basés sur les dépenses. Les résultats ne varient guère entre les pays à régime fédéral et les autres pays d’une manière générale. Les transferts intergouvernementaux se corrèlent généralement de manière négative avec le PIB par habitant. Enfin, la relation entre la décentralisation et le PIB par habitant n’est pas linéaire, les résultats conduisant à penser que le rendement de la décentralisation est en recul. Classification-JEL: H70; H77; O43 Keywords: croissance économique, décentralisation budgétaire, economic growth, fiscal decentralisation, fiscal federalism, fédéralisme budgétaire, productivity, productivité Creation-Date: 2013-06-03 Number: 15 Handle: RePEc:oec:ctpaab:15-EN Template-type: ReDIF-Paper 1.0 Author-Name: Kaja Fredriksen Author-Workplace-Name: OECD Title: Decentralisation and Economic Growth - Part 3: Decentralisation, Infrastructure Investment and Educational Performance Abstract: Theories of fiscal competition between jurisdictions suggest that investment in productive relative to consumptive spending is higher in a decentralised setting, and that efficiency of the public sector is also higher. This paper empirically analyses the link between decentralisation and the composition of public spending as well as the relation between decentralisation and educational performance. The results suggest that fiscal decentralisation increases the share of public funds directed to capital spending and that the bulk of this shift is due to higher education spending. Using an education production function approach and PISA results (Programme of International Student Assessment) as an indicator of educational output, the results suggest that educational performance is significantly higher in decentralised countries, even when controlling for spending and other variables affecting education. A 10% point increase in decentralisation increases educational performance by four PISA points, thereby improving the PISA ranking by around four country positions on average. Decentralisation to lower government levels and decentralisation to the school level (school autonomy) have a similar impact on educational performance.

Décentralisation et croissance économique: Partie 3 : Décentralisation, investissement en infrastructure et performance des établissements scolaires
Les théories de la concurrence budgétaire entre les pays et les entités publiques font penser que l’investissement dans les dépenses de production et non de consommation est plus élevé dans un cadre décentralisé, et que l’efficience du secteur public est supérieure également. La présente note analyse de façon empirique le lien entre décentralisation et performances des établissements scolaires. Les résultats font penser que la décentralisation budgétaire augmente la part de fonds publics axée sur les dépenses en capital, et que l’essentiel de cette évolution est dû à des dépenses dans l’éducation plus élevées. Utilisant une approche de fonction de production dans le domaine de l’éducation ainsi que les résultats du PISA (Programme d’évaluation du suivi des acquis des élèves), comme indicateurs des performances des établissements scolaires, les résultats tendent à montrer que les performances des écoles sont nettement supérieures dans les pays décentralisés, même après prise en compte des dépenses et d’autres variables influant sur l’éducation. La décentralisation à des niveaux infra-gouvernementaux et la décentralisation au niveau des écoles (autonomie des établissements scolaires) ont un impact analogue sur les performances des établissements scolaires. Classification-JEL: H11; H75; I22 Keywords: décentralisation budgétaire, décentralisation de l’éducation, education decentralisation, fiscal decentralisation, fiscal federalism, fédéralisme budgétaire, investissement public, PISA, PISA, public investment Creation-Date: 2013-06-03 Number: 16 Handle: RePEc:oec:ctpaab:16-EN Template-type: ReDIF-Paper 1.0 Author-Name: Nicola Brandt Author-Workplace-Name: OECD Title: Greening the Property Tax Abstract: This paper reviews the literature and policy discussions about the role of the property tax for land use. Various externalities of the development of land, such as new infrastructure needs, the loss of open space or air pollution due to longer commutes as people locate far from city centres, are not internalised fully by property taxes or other policy instruments and this is often thought to contribute to excessive land use and urban sprawl. The impact of property taxes on land use intensity and sprawl is ambiguous in theory, however, and it depends on tax design, as well as land use regulation policies and other taxes that can influence municipalities’ incentives to convert land for development. Yet, there is some evidence suggesting that higher property taxes can limit urban sprawl, in particular when the tax on land is higher than on structures, although effects are small given relatively given a limited price elasticity of land use. Various property tax design options are discussed that may help to better internalise land use related externalities. Classification-JEL: R14; R38; R51; R52 Keywords: fiscal zoning, land use, property tax, urban sprawl Creation-Date: 2014-04-08 Number: 17 Handle: RePEc:oec:ctpaab:17-EN Template-type: ReDIF-Paper 1.0 Author-Name: Enid Slack Author-Workplace-Name: University of Toronto Author-Name: Richard M. Bird Author-Workplace-Name: University of Toronto Title: The Political Economy of Property Tax Reform Abstract: Property taxes are generally considered by economists to be good taxes, and many countries are being advised to increase and improve their property taxes. In practice, however, property tax reforms have often proved to be difficult to carry out successfully. This paper discusses why property taxes are particularly challenging to reform and suggests several ways in which efforts to reform this tax may become more successful in the future. After a brief introductory section on the ‘disconnect’ between the economics and the politics of property tax reform, Section 2 summarizes recent experiences in five OECD countries with property tax reform. Against this background, Section 3 sets out the key elements of a good property tax reform and Section 4 discusses several aspects of property tax reform that seem to have derailed or distorted reforms in practice. Unfortunately, some of the solutions countries have adopted to deal with such problems are themselves problematic, either because they do not really solve the problem or because they hamper rather than work towards the establishment of a good property tax. Fortunately, as Section 5 outlines, it is possible to devise strategies for property tax reform that incorporate more acceptable solutions to most problems. As Section 6 concludes, good property tax reform is not easy. But it can definitely be achieved if an appropriately designed reform package is properly introduced and implemented. Classification-JEL: D78; H24; H25; H71 Keywords: political economy, property tax, tax reform Creation-Date: 2014-04-09 Number: 18 Handle: RePEc:oec:ctpaab:18-EN Template-type: ReDIF-Paper 1.0 Author-Name: Richard Almy Author-Workplace-Name: Almy, Gloudemans, Jacobs & Denne Title: Valuation and Assessment of Immovable Property Abstract: This paper addresses the following questions about immovable property taxation in OECD and partner countries: What is valued? How is it valued? And who values? It draws on published information and data on property tax policy and administration in 172 countries. It focuses on value-based taxes and the features of mass valuation systems. Main system options (such as whether taxes are based on annual rental values or capital values as reflected by sales prices) are described and briefly evaluated. It notes that valuation practices frequently ignore revaluation requirements; it identifies four areas for improving valuation performance based on the experiences of leading systems. Classification-JEL: H10; H11; H20; R51 Keywords: immovable property tax, Land tax, property tax, real estate, tax system, taxation, taxes Creation-Date: 2014-04-09 Number: 19 Handle: RePEc:oec:ctpaab:19-EN Template-type: ReDIF-Paper 1.0 Author-Name: Hansjörg Blöchliger Author-Workplace-Name: OECD Author-Name: Maurice Nettley Author-Workplace-Name: OECD Title: Sub-central Tax Autonomy: 2011 Update Abstract: This paper provides an update of the indicators that measure the tax autonomy of sub-central governments in OECD countries. Over the last decade, tax autonomy at the state level increased, while it hardly changed at the local level. The OECD now has tax autonomy indicators for the years 1995, 2002, 2005, 2008 and 2011.

Autonomie fiscale des autorités infranationales : Mise à jour 2011
Ce document présente des indicateurs actualisés qui mesurent l’autonomie fiscale des administrations infranationales dans les pays de l’OCDE. Au cours de la dernière décennie, l’autonomie fiscale au niveau de l’administration centrale s’est accrue, alors qu’elle n’a guère progressé au niveau local. L’OCDE dispose désormais d’indicateurs relatifs à l’autonomie fiscale pour les années 1995, 2002, 2005, 2008 et 2011. Creation-Date: 2015-03-09 Number: 20 Handle: RePEc:oec:ctpaab:20-EN Template-type: ReDIF-Paper 1.0 Author-Name: Robin Boadway Author-Workplace-Name: Queen's University Author-Name: Sean Dougherty Author-Workplace-Name: OECD Title: Decentralisation in a Globalised World: Consequences and Opportunities Abstract: Globalisation accompanied by the growing importance of information technology and knowledge-based production pose challenging problems for federations. We summarise the difficulties that traditional decentralised federations face in addressing problems of competitiveness, innovation and inequality brought on by globalisation. Adapting to these challenges involves rethinking the roles of various levels of government and rebalancing them appropriately. On the one hand, responding to inequality enhances the policy role of the federal government. On the other hand, state and local governments must respond to the imperative of providing education and business services to equip citizens and firms to compete in the knowledge economy. Perhaps most important, large urban governments are best placed to provide the physical and social capital to support innovation hubs. A key challenge for fiscal federalism is to facilitate the decentralisation of responsibilities to urban governments. This entails new thinking about revenue decentralisation, policy harmonisation and the structure of intergovernmental transfers so that cities can implement their policies effectively and accountably. Classification-JEL: F63; H73; H77 Keywords: decentralisation, fiscal federalism, globalisation Creation-Date: 2018-02-27 Number: 21 Handle: RePEc:oec:ctpaab:21-EN Template-type: ReDIF-Paper 1.0 Author-Name: Leah Phillips Title: Improving the Performance of Sub-national Governments through Benchmarking and Performance Reporting Abstract: Performance systems are one tool available to central governments to improve the performance of sub-national service delivery. This paper provides a preliminary review of suitable metrics and mechanisms to reliably measure and monitor the efficiency and quality of public services that are provided by sub-national governments. This review aims to conceptualise the challenges associated with measuring public sector inputs, outputs and outcomes and implementing effective performance systems. Robust performance systems aim to measure both the efficiency and effectiveness of public services, as well measure cost efficiency, to better understand and remedy cost discrepancies across regions. Implementing qualitative mechanisms such as external inspections and user surveys are also useful in providing insights into consumer experience and well-being. Classification-JEL: H44; H77; O43 Keywords: benchmarking systems, public sector productivity, sub-national government performance Creation-Date: 2018-02-27 Number: 22 Handle: RePEc:oec:ctpaab:22-EN Template-type: ReDIF-Paper 1.0 Author-Name: Katharina Herold Title: Insolvency Frameworks for Sub-national Governments Abstract: Sub-national insolvency frameworks stipulate rules and procedures to resolve sub-national debt in a prompt and orderly way. As such they may serve to facilitate debt restructuring and the fiscal recovery of sub-national entities. They may even prevent sub-national governments from sliding into insolvency. This paper identifies the benefits of setting up an insolvency framework for sub-national governments complementing existing budget rules and procedures. It analyses different design options of sub-national insolvency frameworks by drawing on existing regimes for municipalities in Colombia, Hungary, South Africa, Switzerland and the United States as well as proposals for sovereign bankruptcy procedures in the literature. The paper also explores the main challenges for implementing sub-national insolvency regimes and presents possible solutions. Classification-JEL: H7; K3 Keywords: debt resolution frameworks, municipal bankruptcy, sub-national insolvency Creation-Date: 2018-02-27 Number: 23 Handle: RePEc:oec:ctpaab:23-EN Template-type: ReDIF-Paper 1.0 Author-Name: Dorothée Allain-Dupré Title: Assigning responsibilities across levels of government: Trends, challenges and guidelines for policy-makers Abstract: The past decades have seen an undeniable trend towards decentralisation and greater diversity of multilevel governance arrangements around the world. Decentralisation outcomes depend on the way decentralisation is designed and implemented. A key issue for the effectiveness of decentralisation is linked to the way responsibilities are assigned across levels of government. The literature on fiscal federalism has provided some general guidelines that provide a point of departure for thinking about the assignment of responsibilities. However, when looking at country practices, the difference between theory and country experience appears to be significant. This paper reviews the trends, challenges and good practices in the way responsibilities are distributed across levels of government. It concludes with a set of guidelines for policy-makers, to better assign responsibilities across levels of government for more effective decentralisation. Classification-JEL: H7 Keywords: governance, intergovernmental relations, Public economics, regional economics Creation-Date: 2018-09-27 Number: 24 Handle: RePEc:oec:ctpaab:24-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Leah Phillips Title: The spending power of sub-national decision makers across five policy sectors Abstract: The paper develops new measures of spending power and performance across five key sectors of sub-national government service delivery –- education, long-term care, transport services, social housing and health care. The new indicators reveal unique insights about how responsibilities are assigned across levels of government, which enable the analysis of different arrangements on outcomes. Differences in characteristics across sectors and types of countries may have important consequences for intergovernmental fiscal relations. Classification-JEL: H77; L38; O43 Keywords: intergovernmental relations, public sector productivity, regional authority, Spending autonomy Creation-Date: 2019-03-26 Number: 25 Handle: RePEc:oec:ctpaab:25-EN Template-type: ReDIF-Paper 1.0 Author-Name: Carlos Xabel Lastra-Anadón Author-Name: Sonia Mukherjee Title: Cross-country evidence on the impact of decentralisation and school autonomy on educational performance Abstract: How do administrative and fiscal decentralisation relate to education system performance? The question is answered by exploiting a panel with several different measures of fiscal decentralisation: a measure of administrative decentralisation, as well as a measure of school autonomy (using six waves of PISA). These measures are related to educational outcomes, measured by PISA score country averages. The panel includes year fixed effects and multiple country covariates. Overall, a positive relationship is found linking administrative and fiscal decentralisation with performance, as measured by PISA tests. School autonomy is also positively related with educational outcomes, strengthening the estimated effects of administrative and fiscal decentralisation. Classification-JEL: H75; I28; O43 Keywords: Educational performance, intergovernmental relations, public governance, public sector productivity Creation-Date: 2019-03-26 Number: 26 Handle: RePEc:oec:ctpaab:26-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Luca Lorenzoni Author-Name: Alberto Marino Author-Name: Fabrice Murtin Title: The impact of decentralisation on the performance of health care systems: A non-linear relationship Abstract: This paper examines the relationship between the degree of administrative decentralisation across levels of government in health care decision-making and health care spending, life expectancy as well as hospital costs. This empirical analysis builds on previous analytical research carried out by the OECD (Lorenzoni, Murtin et al., 2018; Lorenzoni and Marino, 2017), both of which established new methodological tools to analyse health sector performance. The present analysis extends this framework to examine the impact of centralisation versus decentralisation of responsibilities across levels of government, making use of newly collected data on governance and expenditure assignment, as well as non-linear empirical specifications. Classification-JEL: H75; I18; O43 Keywords: governance, health care, hospitals, intergovernmental relations, Public economics, regional economics Creation-Date: 2019-03-26 Number: 27 Handle: RePEc:oec:ctpaab:27-EN Template-type: ReDIF-Paper 1.0 Author-Name: Ivor Beazley Author-Name: Sean Dougherty Author-Name: Chris James Author-Name: Caroline Penn Author-Name: Leah Phillips Title: Decentralisation and performance measurement systems in health care Abstract: Based on an OECD survey, this paper presents quantitative and qualitative data on the decentralisation of health systems, focusing on how they vary according to different institutional characteristics and what types of performance measurement systems are used in the health sector. Decision-making in health care tends to rest largely with the central government, which has considerable power across many aspects of the delivery of health services. However, sub-national governments have more control over decisions regarding the inputs, outputs and monitoring of health care services. The majority of OECD countries tends to rely on centralised performance measurement systems, especially to monitor the performance of hospital providers, focusing more on improving performance rather than reducing service costs. Less likely to be monitored under a specific performance framework are providers of ancillary services, retailers and other providers of medical goods, and providers of preventive care. Classification-JEL: H75; I18; O43 Keywords: Health systems, intergovernmental relations, performance monitoring Creation-Date: 2019-04-18 Number: 28 Handle: RePEc:oec:ctpaab:28-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Michelle Harding Author-Name: Andrew Reschovsky Title: Twenty years of tax autonomy across levels of government: Measurement and applications Abstract: The Network on Fiscal Relations has been assessing the degree of sub-central government tax autonomy in OECD countries for almost two decades. This paper provides an in-depth description of the methodology used to characterise tax autonomy. After summarizing the wide-spread use of the tax autonomy results by researchers addressing a range of policy issues, the paper highlights recent trends in sub-central government revenues and presents the results of the latest survey of tax autonomy, completed in 2017. Using the OECD’s tax autonomy methodology, the paper for the first time assesses local government tax autonomy in the 50 US states. The analysis reveals that US local governments have somewhat more tax autonomy than local governments in the average OECD country. The paper includes suggestions for further refinements of the tax autonomy methodology. Classification-JEL: H20; H71 Keywords: fiscal decentralisation, local taxation, property tax design, sub-national governments, tax autonomy Creation-Date: 2019-12-04 Number: 29 Handle: RePEc:oec:ctpaab:29-EN Template-type: ReDIF-Paper 1.0 Author-Name: Céline Colin Author-Name: Bert Brys Title: Population ageing and sub-central governments: Long-term fiscal challenges Abstract: The population in OECD countries is ageing rapidly, which will have significant macroeconomic impacts, including on public expenditure and tax revenues. This paper analyses the consequences of population ageing at the sub-central government (SCG) levels and introduces the ‘SCG fiscal vulnerability to ageing’ indicator. This indicator identifies the countries in which SCGs on average are “vulnerable” to the ageing of their population from a fiscal perspective (both from the expenditure and revenue side). The paper posits that the economic and fiscal consequences of an ageing population goes beyond the central-SCG boundaries. Therefore, in order to make fiscal frameworks “ageing-resilient”, countries require a coherent fiscal strategy, which focuses on tax and spending reforms, with a whole-of-government approach that brings together central governments and SCGs. Classification-JEL: H20; H71; J14 Keywords: ageing, demographic change, long-term scenarios, revenue vulnerability, subnational governments Creation-Date: 2019-12-04 Number: 30 Handle: RePEc:oec:ctpaab:30-EN Template-type: ReDIF-Paper 1.0 Author-Name: Luiz de Mello Author-Name: Teresa Ter-Minassian Title: Digitalisation challenges and opportunities for subnational governments Abstract: The world economy and societies are going through a digital transformation that goes well beyond computerisation and use of information and telecommunications technologies. This transformation is creating opportunities and challenges for all levels of government in the areas of tax and expenditure policy and administration, service delivery and fiscal-financial management, and regulatory practices and policies. However, governments (especially sub-national ones, SNGs) often also face shortages of skills, equipment and physical infrastructure, while having to address emerging challenges in cyber security risk management and data protection. The digital transformation calls for cooperation among the different layers of administration in support of effective and efficient digitalisation of SNGs. This paper reviews and discusses these opportunities and challenges. Classification-JEL: H11; O38; H70 Keywords: decentralisation, digitalisation, subnational governments Creation-Date: 2020-04-20 Number: 31 Handle: RePEc:oec:ctpaab:31-EN Template-type: ReDIF-Paper 1.0 Author-Name: Leah Phillips Title: Decentralisation and inter-governmental relations in the housing sector Abstract: Based on a survey, this paper presents new data on the decentralisation of the housing system and co-ordination mechanisms across levels of government, focusing on the provision of social housing. Decision-making in social housing tends to be more devolved to sub-national actors, as compared to other key public services. Policy decision making tends to be more centralised, while sub-national governments and housing providers have more control over decisions regarding the inputs, outputs and monitoring of social housing. Governments globally have implemented a mix of housing policy interventions. Demand side interventions include tax allowances and subsidies to facilitate the purchase of a home or the provision of social housing in the rental market to those in need. Interventions to influence the supply of housing are generally aimed at housing developers or sub-national governments, to stimulate housing construction. There are a number of policy tools readily available to sub-national governments to improve housing outcomes, including the implementation and reform of taxes on immovable property and the relaxation of restrictive land use regulations. Classification-JEL: H76; O38; R31 Keywords: assignment of responsibilities, fiscal federalism, public housing Creation-Date: 2020-05-25 Number: 32 Handle: RePEc:oec:ctpaab:32-EN Template-type: ReDIF-Paper 1.0 Author-Name: Pietrangelo de Biase Author-Name: Sean Dougherty Title: Federalism and public health decentralisation in the time of COVID-19 Abstract: The Coronavirus pandemic has put extreme pressure on public health services, often delivered at the local and regional levels of government. The paper focuses on how countries made changes to the configuration of federalism during the first wave of the pandemic. These changes typically have involved the centralisation and decentralisation of certain health-related activities, as well as the creation of new coordination and funding mechanisms. Specific tools that have been used include an enhanced role of the executive branch (“executive federalism”), the use of centres of government for vertical coordination, as well as the introduction of unique state-of-emergency laws. New horizontal coordination arrangements have also emerged with the more decentralised approaches. The strengths, weaknesses and implementation risks of various approaches are analysed using country examples. Classification-JEL: H11; H70; I18 Keywords: Coronavirus, fiscal federalism, intergovernmental coordination, public health services, subnational governments Creation-Date: 2021-02-01 Number: 33 Handle: RePEc:oec:ctpaab:33-EN Template-type: ReDIF-Paper 1.0 Author-Name: Camila Vammalle Author-Name: Indre Bambalaite Title: Funding and financing of local government public investment: A framework and application to five OECD Countries Abstract: The bulk of government investment is done at the local level in OECD countries, representing on average 41% of total public investment. Most studies on subnational government debt focus on the regional or state level, and very few studies analyse public investment specifically by local governments. This paper aims at filling this gap, presenting a framework to analyse the key factors, which affect the capacity of local governments to fund and finance public investment, and illustrates the framework with five case studies: Denmark, Finland, Ireland, Netherlands and New Zealand. Classification-JEL: H54; H74; R53 Keywords: fiscal federalism, intergovernmental coordination, public financing frameworks, public investment, subnational governments Creation-Date: 2021-03-25 Number: 34 Handle: RePEc:oec:ctpaab:34-EN Template-type: ReDIF-Paper 1.0 Author-Name: Camila Vammalle Author-Name: Indre Bambalaite Title: Fiscal rules for subnational governments: The devil’s in the details Abstract: This paper describes and analyses the fiscal rules for subnational governments (SNGs) in OECD countries immediately prior to the COVID-19 crisis. It is based on information from the 2019 survey of fiscal rules for SNGs by the OECD Network on Fiscal Relations across Levels of Government. The paper analyses the details of the application of these SNG fiscal rules, and shows that the effective stringency of statutorily similar rules may vary greatly. Classification-JEL: H72; H74; H81 Keywords: fiscal federalism, fiscal rules, intergovernmental fiscal relations, subnational governments Creation-Date: 2021-03-25 Number: 35 Handle: RePEc:oec:ctpaab:35-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Kass Forman Title: Evaluating fiscal equalisation: Finding the right balance Abstract: Fiscal equalisation refers to the transfer of financial resources to and between subnational governments with the aim of mitigating regional differences in fiscal capacity and expenditure needs. However, the determination of fiscal capacity and expenditure needs is not a straightforward task. OECD countries use widely varying mechanism design approaches in their equalisation systems. This paper compares national approaches, covering the three modes of fiscal equalisation: pure revenue equalisation, revenue/cost equalisation and gap-filling equalisation, describing the distinct impacts of each approach on subnational revenue disparities. A clear inverse relationship emerges between the size of the cost-equalising component within a system and the percentage change in subnational per capita revenue disparities after equalising transfers are applied, although no significant relationship emerges between equalisation and regional convergence. Classification-JEL: H76; O38; R31 Keywords: , fiscal equalisation systems, fiscal federalism, inter-governmental transfers, public economics, regional inequality Creation-Date: 2021-04-06 Number: 36 Handle: RePEc:oec:ctpaab:36-EN Template-type: ReDIF-Paper 1.0 Author-Name: Luiz de Mello Author-Name: Teresa Ter-Minassian Title: Improving subnational governments’ resilience in the wake of the COVID-19 pandemic Abstract: The COVID-19 pandemic has had devastating effects on lives, the economy, and the public finances worldwide, drawing attention to the need to enhance resilience to future shocks. This paper focuses on subnational governments, given their important and growing role in the provision of essential public goods and services worldwide. The paper discusses key aspects of subnational resilience, in particular the sensitivity of subnational finances to macroeconomic cycles and shocks and the availability of fiscal buffers; the main factors influencing subnational governments’ ability to provide essential services during crises; and their ability to anticipate and prepare for future shocks, especially those related to climate change. The paper also discusses policy and institutional reform options for both national and the subnational governments to strengthen subnational resilience. Classification-JEL: E62; H72; H77 Keywords: economic resilience, fiscal federalism, intergovernmental relations, the future of public finance Creation-Date: 2022-06-30 Number: 37 Handle: RePEc:oec:ctpaab:37-EN Template-type: ReDIF-Paper 1.0 Author-Name: Pietrangelo de Biase Author-Name: Sean Dougherty Author-Name: Luca Lorenzoni Title: Ageing and the long-run fiscal sustainability of health care across levels of government Abstract: OECD economies are undergoing a seemingly inevitable process of population ageing that has been changing income and consumption patterns. Notably, the demand for health services is expected to increase, while labour forces are projected to shrink. Both factors are projected to negatively impact the sustainability of health systems – the former through an increase in government expenditures on health and the latter through a decrease in government revenues. As health systems and their funding streams tend to be at least partially decentralised in most OECD countries, this fiscal pressure is expected to be asymmetric across levels of government. The objective of this paper is to provide order-of-magnitude estimates of the possible effects of population ageing on government finances across OECD countries, and to discuss reforms to fiscal federalism and intergovernmental relations with the purpose of funding expenditures at all levels of government.  Classification-JEL: H51; H71; J11 Keywords: demographics, fiscal federalism, intergovernmental relations, revenue bouyancy, tax policy Creation-Date: 2022-06-30 Number: 38 Handle: RePEc:oec:ctpaab:38-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Pietrangelo de Biase Author-Name: Luca Lorenzoni Title: Funding the future: The impact of population ageing on revenues across levels of government Abstract: Government revenues may be affected by economic growth and changes in demographics over time. The effect of economic growth can be captured by long-run buoyancy – responsiveness of government revenues to GDP growth – while the demographic effect can be captured by changes in labour income, asset income and consumption patterns over the life cycle, as well as population growth. This paper attempts to quantify the effect of population ageing on OECD tax revenues across different levels of government, by estimating error correction models of revenue buoyancies over the 1990 to 2018 period, by type of revenue, country and level of government. Multiple scenarios are used for the projections to 2040, which are combined with scenarios for the evolution of revenue bases using newly harmonized EU and UN National Transfer Accounts data as well as OECD Population Projections. Classification-JEL: H20; H71; J11 Keywords: demographics, fiscal federalism, intergovernmental relations, revenue buoyancy, tax policy Creation-Date: 2022-08-30 Number: 39 Handle: RePEc:oec:ctpaab:39-EN Template-type: ReDIF-Paper 1.0 Author-Name: Leigh Wolfrom Title: Could insurance provide an alternative to fiscal support in crisis response? Abstract: The COVID-19 pandemic led to significant economic disruptions and revenue losses for business impacted by workplace closure measures aimed at restraining the spread of the virus. Governments provided extensive monetary and fiscal support to address liquidity risks and mitigate the potential for mass insolvencies as few businesses had applicable insurance coverage for these types of losses. This paper examines the fiscal and insurance sector responses to the economic disruptions resulting from COVID-19 workplace closures, the challenges to the availability of insurance coverage for this risk and some of the challenges and risks related to large-scale fiscal support for businesses. It also includes a discussion of the potential contribution of a loss-sharing arrangement between governments and insurance markets for pandemic-related business interruption losses as a means of enhancing the contribution of insurance markets to providing financial protection in the context of future pandemics. Classification-JEL: H12; H51; G22 Keywords: crisis management, fiscal federalism, insurance Creation-Date: 2022-09-30 Number: 40 Handle: RePEc:oec:ctpaab:40-EN Template-type: ReDIF-Paper 1.0 Author-Name: Pietrangelo de Biase Author-Name: Sean Dougherty Title: The past and future of subnational fiscal rules: An analysis of fiscal rules over time Abstract: Fiscal rules are increasingly used at state and local levels to promote fiscal sustainability in OECD countries. Following the Global Financial Crisis, multiple reforms to fiscal rule frameworks were made so that governments could better tackle crises and build buffers for future downturns. This paper examines recent trends in the adoption of fiscal rules across levels of government and empirically assesses their effects with the purpose of providing lessons for the post-COVID-19 period. Beyond addressing the deterioration in public finances after the pandemic, the challenges include addressing the impact of population ageing, climate change and the energy transition, as well as growing regional inequalities. Evolution of the rules employed at the central level are contrasted to those at the subnational levels, including design features and institutional elements, together with their goals and limitations. Classification-JEL: E63; H61; H72 Keywords: budgetary management, fiscal federalism, fiscal frameworks, independent fiscal institutions, stabilisation policy Creation-Date: 2022-10-18 Number: 41 Handle: RePEc:oec:ctpaab:41-EN Template-type: ReDIF-Paper 1.0 Author-Name: OECD Title: The intergovernmental fiscal outlook and the implications of Russia’s war against Ukraine, high energy prices and inflation Abstract: Less than two years after the start of the COVID-19 pandemic, Russia’s illegal, unprovoked and unjustifiable war of aggression against Ukraine has triggered the biggest military confrontation in Europe since World War II. Many OECD countries have reacted to Russia’s aggression by providing military and humanitarian aid to Ukraine and by imposing economic sanctions on Russia, which has accentuated supply chain disruptions, especially in the energy sector. A combination of these supply shocks with a demand shock caused by expansionary fiscal and monetary policies to tackle the pandemic has created inflationary pressures on a scale not seen in decades. Central banks around the world are acting to fulfil their price stability mandates by increasing interest rates and by engaging in quantitative tightening (primarily the selling of government bonds to reduce central bank balance sheets), all of which put pressure on borrowing costs at a time when governments are engaging in expansionary fiscal policy to alleviate the impact of inflation. The objective of this policy note is to examine the main consequences of this challenging environment for the fiscal stance of different levels of governments. These include the weakening outlook for government revenues in times of high expenditure pressures from a more rapid energy transition as well as high borrowing costs. Classification-JEL: H12; H68; H77 Keywords: energy crisis, fiscal federalism, state and local governments, subnational fiscal projections, tax policy Creation-Date: 2023-01-05 Number: 42 Handle: RePEc:oec:ctpaab:42-EN Template-type: ReDIF-Paper 1.0 Author-Name: Luiz de Mello Author-Name: Teresa Ter-Minassian Title: Decarbonisation and intergovernmental fiscal relations: Policy challenges and reform options Abstract: This paper explores the nexus between decarbonisation and intergovernmental fiscal relations, focusing on related challenges and reform options. It highlights the significant role of subnational governments in tackling climate change. Subnational and national governments share responsibilities in areas such as taxation, spending and regulation pertaining to environmental protection, as well as climate change mitigation and adaptation, which calls for effective intergovernmental co-operation to align policy objectives and implementation strategies. The paper outlines decarbonisation requirements across sectors and discusses subnational government involvement in service delivery, investment, revenue generation and regulatory frameworks. Policy options to strengthen subnational contributions to national decarbonisation goals are presented. While focusing primarily on OECD countries, the paper acknowledges the need for improved information on subnational decarbonisation efforts in both advanced and developing countries. Classification-JEL: H23; H70; Q57 Creation-Date: 2023-06-06 Number: 43 Handle: RePEc:oec:ctpaab:43-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Andoni Montes Nebreda Title: The multi-level fiscal governance of ecological transition Abstract: This paper investigates the role of fiscal federalism in driving ecological transition, a key challenge in the United Nations’ Sustainable Development Goals agenda. The ecological transition seeks a sustainable society that prioritises natural resource preservation and reduces environmental impacts. The study investigates the link between fiscal federalism institutions and ecological transition policies, focusing on regional and local governments’ role in implementing environmental goals. Despite subnational governments’ commitment to green objectives, comprehensive plan implementation has been limited due to local governments’ incentive schemes and capacity constraints. The paper examines the potential of fiscal federalism institutions, such as fiscal rules, transfers and capacity-building programs, to support ecological transition policies. The research emphasises engaging regional and local governments in the green agenda and highlights the need for tailored approaches in multi-level fiscal governance to effectively achieve environmental goals. By investigating fiscal federalism’s potential contribution to ecological transition, the paper offers valuable insights for policymakers addressing environmental challenges through a multi-level governance approach. Classification-JEL: H23; H77; Q57 Keywords: ecological transition, environmental goals, fiscal federal institutions, fiscal federalism, green agendas Creation-Date: 2023-06-26 Number: 44 Handle: RePEc:oec:ctpaab:44-EN Template-type: ReDIF-Paper 1.0 Author-Name: Pietrangelo de Biase Author-Name: Sean Dougherty Title: From local to national: Delivering and financing effective long-term care Abstract: This study provides an in-depth examination of the fiscal and governance decentralisation of long-term care (LTC) across OECD countries, offering projections of future fiscal burdens of LTC spending across levels of government. With rapid population ageing and a decrease in the supply of informal care, LTC spending has increased significantly. The paper introduces a novel methodology to estimate LTC expenditures across different government levels, including central and subnational governments. By analysing country cases, it explores the responsibilities assigned to each government level and the implications for service delivery and intergovernmental coordination. The study also discusses the overall anticipated increase of LTC expenditure to 2.3% of GDP by 2040, identifying the most impacted countries. This research contributes to our understanding of LTC systems, highlights the challenges of increasing LTC costs and provides insights for optimising governance and fiscal expenditure. Classification-JEL: H51; H77; I18; J11 Keywords: fiscal federalism, health accounts, long-term care, population ageing, social care Creation-Date: 2023-07-05 Number: 45 Handle: RePEc:oec:ctpaab:45-EN Template-type: ReDIF-Paper 1.0 Author-Name: Luiz de Mello Author-Name: Teresa Ter-Minassian Title: Managing rising subnational fiscal risks Abstract: Subnational governments face a range of fiscal risks, defined as events whose realisation leads to significant deviations of revenue and/or expenditure from budgeted amounts. Fiscal risks reflect unforeseen macroeconomic developments, as well as structural shifts in the economy, including digitalisation and climate change. Sound management of these risks requires a comprehensive framework involving their identification, analysis, mitigation, sharing or transfer, and prudent accommodation. Within this framework, subnational governments need to strengthen their capacity to manage their own risks, but national governments also have a role to play. This includes mitigating risks created by national policies, minimising moral hazard in supporting subnational governments affected by exogenous shocks, and using their legislative powers to avert excessive subnational risk-taking. Effective intergovernmental cooperation is key to the sound management of subnational fiscal risks. The paper discusses how different levels of government can work together in applying this framework to the main types of risks. It also provides some examples of good international practices in the management of risks. Classification-JEL: H12; H70; H77 Keywords: fiscal risks, fiscal sustainability, intergovernmental relations, risk management, subnational governments Creation-Date: 2024-06-13 Number: 46 Handle: RePEc:oec:ctpaab:46-EN Template-type: ReDIF-Paper 1.0 Author-Name: Acauã Brochado Author-Name: Sean Dougherty Title: Riding the rollercoaster: Subnational debt in turbulent times Abstract: With interest rates at their highest levels in two decades, subnational governments (SNGs) are grappling with growing debt sustainability concerns. This paper investigates SNGs’ financing vulnerabilities by examining their debt levels and sensitivity to interest rate fluctuations. It provides an in-depth analysis of SNG debt portfolios, with a particular focus on marketable debt or bonds. While most SNG bonds have fixed rates and long maturities, some jurisdictions are significantly exposed to interest rate and foreign currency risks. Simulations reveal that interest expenses could rise substantially for some SNGs. Yet, worryingly, the variation in borrowing costs among SNGs within countries is often limited, suggesting potential weaknesses in market discipline. To navigate these challenges, the paper briefly explores how well-crafted fiscal rules, tax autonomy, and insolvency frameworks can help mitigate risks. It also highlights the need for further assessment of bank loans, as systematic information remains scarce. The paper provides insights for policymakers seeking to address risks and inform future reforms of SNG bond markets, reinforcing market discipline and bolstering fiscal resilience. Classification-JEL: H74; H77; E43 Keywords: debt sustainability, fiscal rules, insolvency, interest rates, market discipline, subnational debt Creation-Date: 2024-06-13 Number: 47 Handle: RePEc:oec:ctpaab:47-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Tatiana Mota Title: Navigating conflict and fostering co-operation in fiscal federalism Abstract: This paper examines intergovernmental fiscal disputes and co-operation mechanisms across federal and decentralised countries. Employing a case study approach and AI tools, the research analyses constitutional court rulings and their influence on the development of fiscal federalism in seven countries: Australia, Belgium, Brazil, Canada, Germany, India and the United States, with additional insights from Spain, the Netherlands and the European Union. The findings reveal significant variations in the nature and frequency of disputes and judicial interventions, highlighting the crucial role of court decisions in shaping fiscal federalism, most notably in the area of taxation. While conflicts are inherent to decentralised systems, their nature and frequency vary based on each country’s unique constitutional, political, and economic context. The paper recommends strategies for managing disputes and fostering co-operation, including clearly defining powers and responsibilities, enhancing the role of courts in providing fiscal guidance, strengthening intergovernmental institutions and ensuring adaptability to changing conditions. The study concludes that a proactive, collaborative approach involving all tiers of government is crucial to navigate the complexities of fiscal federalism and promote effective governance. Classification-JEL: H11; H77; K10; K41 Keywords: arbitration, constitutional courts, decentralisation, fiscal relations, intergovernmental co-operation, intergovernmental fiscal disputes, subnational governments, tax disputes Creation-Date: 2024-07-22 Number: 48 Handle: RePEc:oec:ctpaab:48-EN Template-type: ReDIF-Paper 1.0 Author-Name: Sean Dougherty Author-Name: Andoni Montes Nebreda Author-Name: Tatiana Mota Title: Adapting intergovernmental fiscal transfers for the future: Emerging trends and innovative approaches Abstract: Intergovernmental fiscal transfers (IFTs) play a crucial role in addressing vertical and horizontal imbalances, promoting equitable service delivery, and aligning local spending with national priorities across OECD countries. However, their design involves navigating complex trade-offs between equity, efficiency, transparency, and autonomy. This paper reviews the theoretical framework of IFTs, aiming to dissect their objectives, incentives, and outcomes, and to clarify their classification. A significant contribution of this study involves new data that tracks IFTs across the OECD, revealing that transfers from central to subnational governments increased across all countries studied during the COVID-19 pandemic. While there have been no radical changes in IFTs in recent years, emerging trends such as performance-based grants, Ecological Fiscal Transfers, links with regional policy, and new budgeting techniques suggest potential avenues for reform. By understanding the present dynamics and trends, this study aspires to pave the way for more informed, strategic, and beneficial fiscal transfer policies in the years to come, ensuring that these transfers continue to serve their intended purposes effectively while adapting to changing economic and social conditions across OECD countries. Classification-JEL: H77; H81; R58 Keywords: conditional transfers, fiscal federalism, fiscal imbalances, intergovernmental fiscal transfers, subnational governments Creation-Date: 2024-07-22 Number: 49 Handle: RePEc:oec:ctpaab:49-EN