OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Fiscal Consolidation Across Government Levels - Part 3. Intergovernmental Grants, Pro- or Counter-cyclical? You or your institution have access to this content

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Author(s):
Hansjörg Blöchliger1, Balázs Égert1
Author Affiliations
  • 1: OECD, France

Publication Date
28 June 2013
Bibliographic information
No.:
1072
Pages
16
DOI
10.1787/5k43nxqrlmtf-en

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This paper provides empirical analysis that measures the cyclical properties of intergovernmental transfers (or grants). Modelling a fiscal policy reaction function this paper tests whether the transfers systems in OECD countries are pro- or counter-cyclical, i.e. whether they offset cyclical fluctuations of sub-central economies or, on the contrary, exacerbate them. Regression results suggest that transfer systems tend to be pro-cyclical in general and in more than half of OECD countries they tend to destabilise sub-central budgets. Transfer pro-cyclicality may be the result of several factors: Transfer spending is often determined as a share of central government tax revenue, which itself tends to fluctuate with the cycle. Moreover, many grants are matching sub-central spending and hence tend to exacerbate fluctuations of that sub-central spending. Pro-cyclical grants could partly explain the often observed pro-cyclicality of subcentral government fiscal policy.
Keywords:
pro-cyclicality, stabilisation, fiscal federalism, intergovernmental grants
JEL Classification:
  • H42: Public Economics / Publicly Provided Goods / Publicly Provided Private Goods
  • H50: Public Economics / National Government Expenditures and Related Policies / General
  • H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession