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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 Federalism in Belgium
Main Challenges and Considerations for Reform
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- Willi Leibfritz
- 14 Dec 2009
- Bibliographic information
The paper discusses the current state of fiscal relations across levels of government in Belgium and how it has developed over time. As the current system of fiscal federalism is creating imbalances between the federal and the sub-federal governments (vertical imbalance), and between sub-federal governments (horizontal imbalance) the paper also suggests directions for improvements. Without reform, the vertical imbalance will widen as the fiscal burden from the ageing of the population falls mainly on the federal level. Reform should therefore strengthen the fiscal capacity of the federal government by improving its revenue sources and by shifting some spending obligations to sub-federal governments. The imbalance between regions arises because of the lack of coherence between taxation and spending. Shared revenues from the personal income tax are allocated to the region of residence, while the region of the workplace does not benefit, which particularly affects Brussels’ revenue level. This imbalance could be eliminated by allocating more of the shared personal income tax to the region of the workplace. Furthermore, the system of equalisation grants should be re-designed to provide incentives to the recipient regions to develop their own revenue base. The performance of the fiscal system could further be improved by raising the efficiency of spending in areas of national interest, which have been assigned to sub-federal governments or where there are overlapping responsibilities, such as in employment, R&D, training, education, energy and environmental policies.
Also available in French
- fiscal federalism, fiscal co-ordination, equalisation, tax assignment
- JEL Classification:
- H7: Public Economics / State and Local Government ; Intergovernmental Relations
- H71: Public Economics / State and Local Government ; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue
- H72: Public Economics / State and Local Government ; Intergovernmental Relations / State and Local Budget and Expenditures
- H73: Public Economics / State and Local Government ; Intergovernmental Relations / Interjurisdictional Differentials and Their Effects
- H75: Public Economics / State and Local Government ; Intergovernmental Relations / State and Local Government: Health ; Education ; Welfare ; Public Pensions
- H77: Public Economics / State and Local Government ; Intergovernmental Relations / Intergovernmental Relations ; Federalism ; Secession