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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.

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The political economy of fiscal decentralisation

In the present tight fiscal environment, many countries may seek to reform their fiscal relations across levels of government to try to find efficiency gains. Although fiscal federalism reforms are meant to make intergovernmental fiscal relations more efficient, more equitable and more stable, experience shows that they usually face stiff political resistance. Little analysis has been done so far on the political economy of fiscal federalism and local government reforms. The present chapter summarises the main conclusions of the study carried out by the OECD Network on Fiscal Relations across Levels of Government. The first section analyses why governments undertake fiscal federalism reforms, and the methodology used in the study. The second section focuses on the context for the reform, i.e. on the factors that shape and influence reforms and reform processes, but that lie largely beyond the control of policy makers, such as the general economic situation or electoral mandates. The third section discusses the issues of the timing and scope of the reforms, and in particular, underlines the importance of bundling several reforms together. The last section deals with the design of the reform process.

English

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