OECD Working Papers on Fiscal Federalism

ISSN :
2226-5848 (online)
DOI :
10.1787/22265848
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The Fiscal Federalism Working Paper series covers issues related to intergovernmental fiscal relations and local/regional public finance, such as: tax and spending assignment across government levels; intergovernmental grants; fiscal equalization; local and regional public service efficiency; inter-jurisdictional tax competition; and macroeconomic issues such as intergovernmental fiscal management and sub-central fiscal rules.
Note. Nos 1, 6 and 8 are available in OECD Economics Department Working Papers, as Nos 465, 626 and 705.
 

Explaining the Sub-National Tax-Grants Balance in OECD Countries You or your institution have access to this content

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Author(s):
Claire Charbit1
Author Affiliations
  • 1: OECD, France

Publication Date
12 Jan 2010
Bibliographic information
No.:
11
Pages
33
DOI
10.1787/5k97b10s1lq4-en

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Normative principles provide a relatively clear set of rules for the balance between grants and taxes (box 1 reviews the normative theory), but in practice a variety of types of tax-grant systems are observed in OECD countries, which do not all follow these rules. According to the theory, own-taxes should be the primary revenue source (technically for the last dollar of spending), while transfers should only be used as a supplementary revenue source to correct for externalities, act as an insurance buffer, or redistribute resources between regions (see OECD 2006a, 2006b). Besides, the theory wants tax bases for sub-national governments to be confined to immobile resources such as land and user fees. In practice, transfers often represent a large proportion of sub-national governments’ revenues, and many countries use income taxes instead of property taxes at the sub-national level.