OECD Regional Development Working Papers

ISSN :
2073-7009 (online)
DOI :
10.1787/20737009
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Working papers from the Regional Development Policy Division of the OECD cover a full range of topics including regional statistics and analysis, urban governance and economics, rural governance and economics, and multi-level governance. Depending on the programme of work, the papers can cover specific topics such as regional innovation and networks, the determinants of regional growth or fiscal consolidation at the sub-national level.
 

Sub-national Finances and Fiscal Consolidation

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Author(s):
Camila Vammalle1, Claudia Hulbert
Author Affiliations
  • 1: OECD, France

Publication Date
11 Mar 2013
Bibliographic information
No:
2013/02
Pages
50
DOI
10.1787/5k49m8cqkcf3-en

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Recent crises and national consolidation packages affected sub-national finances. In many OECD countries, central governments introduced reductions in transfers to sub-national governments, and established expenditure and/or deficit objectives to be met by local or regional authorities. Such measures have reduced the financial room of sub-national governments for implementing key public services or investments.

In parallel, borrowing conditions deteriorated for many sub-national governments, as banks and financial markets became increasingly reluctant to lend. Since late 2008, financial markets started discriminating between high- and low-quality SNG bonds, and yields reached record-high levels for sub-national governments perceived as less creditworthy.

Facing degraded finances, upward pressure on expenditures and deteriorated borrowing conditions, many sub-national governments have used public investment as an adjustment variable to reduce their budget deficits and preserve their spending on welfare, health or education. However, such policies may hinder long-term growth perspectives.

Keywords:
bailouts, public debt, fiscal stress, sub-national government
JEL Classification:
  • H12: Public Economics / Structure and Scope of Government / Crisis Management
  • H70: Public Economics / State and Local Government; Intergovernmental Relations / General
  • H74: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Borrowing
  • H81: Public Economics / Miscellaneous Issues / Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts