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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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Taxonomy of grants and local taxes

The Norwegian case

The chapter discusses a taxonomy of grants and local taxes based on the Norwegian institutional context. A main issue is whether the major local tax, the personal income tax, should be classified as a tax with local discretion or a tax sharing arrangement. Although local governments can formally set tax rates below the upper limit, it would give a more correct picture of the Norwegian system if the local income tax was classified as a tax sharing arrangement. The taxonomy of grants is less problematic, but some earmarked grants constitute a grey zone in the sense that they work as non-earmarked grants. In addition, the VAT compensation scheme should be classified as a non-earmarked grant.

English

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