Institutional and Financial Relations across Levels of Government

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As financial markets put more and more pressure on governments to reduce their deficits and debts, sub-central levels of government are a key player in the implementation of national strategies. The room for manoeuvre to implement consolidations strategies coordinated across levels of government highly depends on the institutional structure of intergovernmental relations, and the effectiveness of their multi-level governance structure. This was already the case for recovery strategies, in the beginning of the crisis. This report provides an overview of the institutional and financial relations across levels of government that enables policymakers evaluate their position and identify good practices for mobilizing sub-central governments for national growth, equity and stability objectives. This report is divided into two parts: the first part is analytical and the second part provides institutional and quantitative country information and comparisons.



A sub-central government perspective on fiscal policy in a tight fiscal environment

This chapter assesses the impact of the global financial crisis on sub-central governments’ finances and describes how the relationship between central and sub-central governments has evolved, from a strong support during the crisis, to requesting their efforts in the present phase of consolidation. The first section shows that the crisis and stimulus measures have increased the levels of sub-central government debts and exacerbated the disparities between strong and weak sub-central governments. The financial markets are now putting pressure both on central governments and on sub-central governments to reduce their levels of debt. The second section shows that a credible commitment on the part of sub-central governments is necessary to achieve fiscal consolidation and describes the measures being taken to achieve this. The third section explores the need for all levels of government to make the most of reduced public investment in a tight national fiscal context and presents some guiding principles how to do better with less.


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