Fiscal decentralisation work will require further reforms

Fiscal Federalism 2016 surveys recent trends and policies in intergovernmental fiscal relations and sub-central government. Accessible and easy-to read chapters provide insight: into growing spending and tax devolution; the fiscal constitutions of federal countries; how immovable property taxation is regaining its former significance; on the true spending power of sub central governments; on the mix between own tax resources and intergovernmental grants; and on the role of fiscal rules and good budget frameworks for sustainable debt management at the state and local level.

More than one-third of public money is currently spent at the sub-national government level, and this percentage has increased over time. State and local governments shape policy on education, healthcare, infrastructure and other key areas, and affect both productivity and the sustainability of public finances.

With numerous countries planning wide-ranging devolution of public finances to the sub-national levels, a new report, Fiscal Federalism 2016, looks at steps that can be taken to make devolution work.

The report details the weaknesses that have been exposed by the economic and fiscal crisis. Sub-national deficits and debt have soared as a result of incoherent multi-level fiscal frameworks, although they remain still modest compared to central government.  Tax and spending responsibilities are unbalanced: in many countries, sub-national spending is largely financed through transfers, making sub-national spending opaque and prone to ineffectiveness. The property tax, which is the most suitable tax for the sub-national level, remains far below its potential.

The OECD underlines that making decentralisation work will require further reforms of inter-governmental fiscal relations and improvements to the underlying fiscal architecture.

Fiscal Federalism 2016 provides an overview of recent trends and policies in intergovernmental fiscal relations and of sub-central governments. It reviews recent trends in fiscal decentralisation; the impact of fiscal constitutions on fiscal outcomes; how immovable property taxation could regain its former significance; the true spending power of sub-central governments; the mix between own tax resources and intergovernmental grants; and the role of fiscal rules and good budget frameworks for sustainable debt management at the state and local level.

OECD and KIPF.  (2016), Fiscal Federalism 2016: Making Decentralisation Work, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264254053-en

More: http://www.oecd.org/publications/fiscal-federalism-2016-9789264254053-en.htm

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