Institutions of Intergovernmental Fiscal Relations

Challenges Ahead

image of Institutions of Intergovernmental Fiscal Relations

Intergovernmental fiscal institutions are the overarching framework for relations across government levels. They comprise the constitutional set up of a country; the division of power between government levels; the prevalence of fiscal rules across government levels; intergovernmental budget frameworks; the role of independent bodies such as fiscal councils in shaping fiscal relations; the inter-ministerial organisation of fiscal decision making; and other framework conditions shaping intergovernmental fiscal relations and fiscal policy. This book brings together academics and practitioners dealing with or being involved in shaping the institutions of intergovernmental fiscal relations. It has an interdisciplinary focus and provides insight from various academic or practitioners’ fields: economists, political scientists, budget management specialists and others.



Municipal bailouts in Denmark – and how to avoid them

Economically robust municipalities are of great importance to the decentralised Danish public sector. The size of municipalities and the extensive equalisation system contribute to this objective, but moreover a mechanism to avoid local bail-outs and bailout-like situations has been developed since the 1980s. This institutional mechanism consists of formula-based elements with a minimum of administrative discretion. The mechanism has worked well since the late 1980s involving a number of cases, and the success originally explained by at least three factors: the thorough application of the mechanism, the local distaste for legal conflict with the central government, and the local stigma of being “under administration” by the upper level of the public sector. In recent years, the need for the mechanism seems to have diminished, because fewer and economically more sustainable municipalities accompanied by structural reforms of local governments from 2007 and the Danish budget law. The budget law has established a top-down economic control of local governments’ finances, where non-compliance with expenditure ceilings implies possible use of economic sanctions to both the municipalities in general and to specific municipalities.


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