OECD economies face the common challenge of raising public sector efficiency, and fiscal relations between central and sub-national governments are coming under increasing scrutiny in this regard. While there are apparent advantages to decentralisation, the choice between central and local provision is not clear-cut and devolution has not proceeded evenly in the OECD area over the past two decades. Decentralisation can make governments more accountable, allowing a better matching of public services to local preferences and needs. It may introduce competition across jurisdictions, thus boosting efficiency in the public sector. But it can also create co-ordination problems and may not deliver efficiency gains in activities where small-scale operation increases provision costs or in cases where the benefits and costs of an activity are felt outside the supplying jurisdiction. Moreover, nationwide policy objectives, notably those related to equity and macroeconomic stabilisation, may be more difficult to achieve with greater sub-national autonomy...