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Measuring Fiscal Decentralisation

Concepts and Policies

image of Measuring Fiscal Decentralisation

When trying to measure fiscal decentralisation, the OECD Network on Fiscal Relations Across Government Levels has made significant progress in the last years, especially on tax autonomy of sub-central governments. But in many respects, real-world fiscal decentralisation still escapes the measuring tools, especially when it comes to measure the spending power of sub-central governments or the various regulations attached to intergovernmental grants. This book deals with two interrelated issues. The first concerns  the various measurement of fiscal decentralization in general and their usefulness for policy analysis. The second and more specific issue concerns the taxonomy of intergovernmental grants and the  limits of the current classifications, and how policy changes to the intergovernmental grants framework may require that measurement devices be adapted.

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Measurement of decentralisation

How should we categorise tax sharing?

The empirical studies of the economic effects on fiscal decentralisation depend critically on the correct measurement of decentralisation. And yet the various decentralisation measures conventionally used by researchers do not reflect the complex nature of sub-central fiscal frameworks. In particular, the sub-central share of revenue suffers from the fact that revenue arrangements in many countries consist of tax sharing, with or without in-equalisation. To overcome this problem, the OECD (2009) has developed a set of criteria that identify two types of tax sharing: one with strict tax base proportionality and the other without it. However, this definition still needs further refinement since it does not capture the different degrees of fiscal equalisation embedded in tax sharing arrangements. This chapter suggests a refinement of the tax sharing definition that captures the degree of (inverse) proportionality between local tax base and revenue from tax sharing.

English

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