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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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Measuring decentralisation

The challenge of the Danish story

The OECD has done path breaking work in developing indicators of local autonomy. The work begun in the late 1990s on a taxonomy of local taxing power seems especially promising. In contrast to measures of local shares of total expenditure and revenue it focuses on the discretion enjoyed by local authorities. This is at the heart of the theoretical concepts of local autonomy, authority or decentralisation. It is therefore recommendable to continue the OECD work on establishing a cross-national dataset on local taxing power. But there is still work ahead before this particular indicator is completely satisfactory. The Danish experience shows how difficult it is to make a correct coding of individual countries. It is not enough to focus on official rules in national tax codes. At least in Denmark, these rules are nested in informal institutions and supplemented by other formal rules that make the formal tax codes grossly misleading.

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