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.

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