4. Avenues towards place-based regional policy and governance

For many European Union (EU) and OECD countries, continuous acute territorial disparities can have a destructive/detrimental impact on living standards and socio-economic growth within the country. It is crucial now to achieve a significant shift in the attitude, views and perspectives towards regional development by moving towards a place-based and integrated approach for regional policy for post-2020. Place-based policies are all the more important in light of growing public discontent with the economic, social and political status quo in many regions. Place-based policies will become even more important in the future due to several technological, demographic and environmental megatrends (OECD, 2019[1]).

Bulgaria is gradually becoming aware of these issues. Based on the National Regional Development Strategy (NRDS) 2012-22 and the National Concept for Spatial Development (NCSD) 2013-25, there is a clear shift of the national regional development policy towards a more balanced territorial development. Amendments to the Regional Development Act in March 2020 are also a step in the right direction but their implementation – still under discussion and public consultation – will need to consolidate these positive orientations.

For 2021-27, Bulgarian regional policy is evolving towards a more integrated and place-based approach. The objective is to create vital, economically strong and sustainable regions as a response to adverse demographic trends and deepening inter- and intra-regional disparities. The specific objectives include:

  • Addressing negative demographic trends and reducing regional population disparities.

  • Enhancing the economic growth of the Bulgarian regions.

  • Promoting balanced territorial development through a polycentric network of cities and towns supported by integrated investments.

Bulgaria has taken several steps to improve its regional policy instruments. The Regional Development Act was amended in early 2020 to strengthen the importance of the territorial dimension of sectoral policies, improve cross-sectoral co-ordination, develop a polycentric model of hierarchical city centres and ensure the effective implementation of Integrated Territorial Investments (ITI) developed by the EU (EU, 2014[2]).

The RDA contains three main improvements aimed at optimising strategic planning, improving the governance of regional and spatial development policy and effectively implementing ITI during the next programming period 2021-27:

  • The number of levels of strategic planning for the regional policy has been reduced to three: national, regional (NUTS 2) and municipal. It means that the district level is no longer a regional planning level. Similarly, there are now only three types of planning documents: the National Regional/Spatial Development Concept; Integrated Territorial Strategies (ITS) for the development of the six NUTS 2 regions and the Integrated Municipal Development Plans (IMDPs). The first two are prepared at the national level while the IMDPs are prepared by the local authorities.

  • Planning regions will play a stronger role in policy implementation. A restructuring of regional development councils (RDCs) is planned to reinforce their role. Furthermore, these new RDCs will be the territorial authorities responsible for the implementation of ITI and for the selection of projects to be financed from different financial sources, including European Structural and Investment Funds (ESIF).

  • The ITS and IMDP should play the role of territorial strategies for the implementation of the new 2021-27 Programme for the “Development of the Regions” (PDR) which is currently under preparation and which will include integrated territorial development instruments.

The regulations for the implementation of the Regional Development Act came into force in August 2020. The new regulations are intended to ensure more clarity, better quality and enhanced co-ordination in the design and management of strategic planning documents, RDCs and ITS.

The draft Partnership Agreement for the 2021-27 programming period, as well as the new PDR 2021-27, are under preparation. The PDR will focus on Objective 5 of the New Cohesion Policy 2021-27 – “A Europe closer to the citizens”. The programme will include two dedicated priorities – one for integrated urban development and another one for integrated territorial development of the NUTS 2-level regions. Under the first priority, the PDR will support the ten largest urban municipalities (i.e. the growth centres) with infrastructure investment, development and maintenance. Key areas for investment include business and industrial activities, energy efficiency, sustainable urban mobility, green urban infrastructure, education infrastructure and municipal housing among others. Under the second priority, the other “smaller” municipalities will receive support for investments in similar areas: health and social infrastructure (e.g. day nurseries), educational infrastructure (e.g. kindergartens), cultural and sports infrastructure, housing and energy efficiency, etc.

The implementation of PDR 2021-27 is expected to adopt a mix of top-down and bottom-up approaches. Bottom-up as in the activities to be supported have to be pre-identified in the IMDPs and elaborated on by the local municipal authorities. Top-down refers to the measures tied to sectoral policies and which have to be based on the pre-mapping of needs at the national level by the state institutions and agencies responsible for the development of those policies. These measures will also need to be duly reflected within the integrated municipal development plans. In addition, the PDR will be implemented through integrated territorial development instruments, such as ITI, which aims to achieve a better investment focus, more effective and efficient interventions, enhanced cross-sectoral dialogue between different stakeholders and an integrated approach to regional development.

Making the most of decentralisation for regional development seems particularly crucial in the current context of growing “geography of discontent” and increasing divides between territories, in particular between places that have felt left behind by globalisation and technological change and those which have seized the opportunities offered by these megatrends. Subnational governments are the ones facing this discontent of their communities and they are also particularly well placed to act more effectively at the regional and local levels, in urban and rural areas, by identifying local comparative advantages and designing relevant development policies. But this implies that subnational governments enjoy some autonomy and capacity to act, including adequate clarification of responsibilities and resources.

While decentralisation is often associated with a more efficient provision of local public goods and services and a better match between policies and citizens’ preferences, there are concerns about whether all regions will gain from more autonomy thanks to decentralisation. Decentralisation may not lift all boats, with “poor” regions losing their ability to compete with better ones, thus increasing regional disparities. However, recent empirical evidence based on the analysis of taxing powers, spending autonomy and the vertical fiscal imbalance suggest that a balanced fiscal structure, where local spending is mainly financed by local taxation, reduces regional disparities, by providing an incentive to better use local resources and implement policies that favour economic development (Bartolini, Stossberg and Blöchliger, 2016[3]). Therefore, revenue decentralisation seems to be associated with smaller regional economic disparities and to spur growth and convergence dynamics in poorer regions (Figure 4.1). Similarly, decentralisation has been found to reduce disparities in a sample of EU countries (Ezcurra and Pascual, 2008[4]). Regionalisation may as well correct inter-regional disparities and give local actors the means to implement better regional development policies, such as, in EU countries, the ability to manage EU funds (OECD, 2020[5]).

To mobilise the regional productivity catch-up potential as well as to ensure that growth and productivity will be more balanced and inclusive across the territory, an efficient multi-level governance system is therefore required, based on an enhanced role for subnational governments, especially the regions, capable to design and implement context-sensitive interventions (OECD, 2017[6]).

The lack of progress in Bulgaria’s decentralisation process calls for updating the current decentralisation strategy and preparing a new programme for 2021-25. The update should focus not only on the content of the strategy but also on its method. Regarding the method, the update should take into consideration the difficulties encountered in implementing previously planned measures (see Chapter 3). These difficulties have been already been well highlighted in the “analytical part” of the 2016-25 strategy, which underlined that they were often more political than technical in nature. These challenges remain highly relevant and should be effectively addressed as preconditions to ensure the success of the implementation of the updated decentralisation strategy. Designing a “good reform” is not sufficient as it may not, or only partly, be implemented in practice.

Regarding the content, it is proposed to revise the current strategy and prepare a new programme for 2021-25. It is necessary to implement measures which were planned in the 2016-19 programme. Decentralisation and regionalisation should be better linked through enhancing the regional approach and thus better interconnecting and “bundling” the municipal and regional dimensions of the strategy. In addition, it is necessary to implement measures which were planned in the 2016-19 programme and include further measures to strengthen political, administrative and fiscal decentralisation and to reorganise regional governance in such a way that ensures good governance and effective regional development.

Beyond the decentralisation strategy itself, it is necessary to pay special attention to the implementation process. How reforms are implemented is as crucial as the nature of the reforms themselves. Based on this perspective, an implementation strategy should be prepared that identifies the necessary steps for the successful execution of the reform. There are potential strategic levers for policymakers planning to introduce multi-level governance reforms with some chance of success. These are:

  • Developing an informed dialogue with key stakeholders involved in the reform.

  • Establishing a multi-level governance “forum” for decentralisation and regionalisation.

  • Developing effective tools for monitoring and assessing the implementation of the reform.

  • Conducting pilot programmes and experiments to demonstrate the effectiveness of the reforms and to pave the way for change on a larger scale.

It is uncertain as to whether the decentralisation and regionalisation topic has been sufficiently debated amongst Bulgarian politicians and civil society. Opposition can be overcome and support gained through the development of a multi-level co-operation culture and practice, based on wide-reaching consultations, discussions and negotiations. Without a common vision shared by all stakeholders, decentralisation and regionalisation become secondary priorities or simply an instrumental position and thus not implemented. All stakeholders must reach, and share, a deep understanding and consensus on decentralisation and regionalisation.

In particular, the benefits of decentralisation and regionalisation for Bulgaria should be better explained to the different stakeholders in Bulgaria. There is still plenty of resistance that needs to be overcome by evidence and dialogue. Of course, this is not an easy thing to do as decentralisation is first and foremost a political issue, often criticised from different parts of society. It often has both fervent supporters and detractors. But it should be argued that the question is not whether decentralisation is good or bad in itself but that decentralisation outcomes – in terms of democracy, good governance, efficiency and accountability, regional and local development – depend greatly on the way decentralisation is designed and implemented. Therefore, the government should present evidence on the benefits of decentralisation and regionalisation without minimising the risks (Box 4.1).

In the case of Bulgaria, policy tools could be used to bring more objectivity to the debate and to foster a dialogue among politicians and civil society. An in-depth analysis of the rationale and effects of decentralisation and regionalisation is needed and an objective and pragmatic approach should be considered. To gain support from civil society, it is necessary to listen to their views. From this perspective, public debates and consultation mechanisms could be mobilised, such as roadshows, consultation roundtables, conferences and virtual communication tools including Internet tools, virtual events, etc. Several countries also privilege a “white paper process”, such as Australia, Ireland or the United Kingdom (England). Poland for example has been an exemplar in the way it conducted its multi-level governance reforms through intense public discussions which were held before the adoption of the law. These discussions marked an important period of extensive democratic debate, whereby all stakeholders were invited to the proceedings to share their views on the law. This occasion was an interesting opportunity to hear the ideas and visions that local citizens had for their region and to see how the memories of ancient regional administrative divisions remain (OECD, 2020[5]).

Overcoming opposition from municipalities is another crucial step to ensuring successful multi-level governance reform. Municipal opposition can be a major obstacle to changing and potentially leading to water-downed reform plans that give rise to inconsistencies during implementation, as has been observed in many OECD countries. It is necessary to envisage a wide-reaching consultation with local representatives, starting in the early stages of the reform process, as well as involving them in the reform design, implementation and monitoring phases (OECD, 2017[8]).

Mobilising and generating acceptance from central government civil servants through good communication practices, incentives and training activities are also key factors for success, as decentralisation reforms affect central government structures at ministerial and territorial levels and can be perceived as a threat.

The central government should provide expertise, communication tools (including Internet tools), guideline documentation, explaining the objectives and expected outcomes of the decentralisation, and a regionalisation strategy for each category of stakeholders.

Bulgaria could establish a multi-level governance forum to facilitate the participation and consultation of a variety of stakeholders, in order to reap the benefits of their knowledge and expertise and to overcome potential opposition to reform. Such a forum could include representatives of key ministries, planning regions, districts, municipalities and their associations but also other key stakeholders such as business and citizen associations, universities, non-governmental organisations (NGOs), etc.

Establishing an expert advisory committee could also allow for gaining political consensus across party boundaries. This may be also especially crucial to keeping the momentum for reform going despite changes in government. Several OECD countries have successfully implemented such expert committees, such as the CORA group in Spain, the independent Local Government Commission in New Zealand, decentralisation promotion committees in Japan, and expert committees in Australia, Norway and Sweden (OECD, 2017[8]).

Apart from a forum or an expert advisory committee, Bulgaria could establish a permanent multi-level governance platform for dialogue and co-ordination across levels of government (see below “Establishing a multi-level governance platform for dialogue and co-ordination”).

The implementation strategy should include tools and indicators to constantly monitor the progress of the decentralisation strategy and regularly assess the reform’s outcomes. The lack of evaluation of governance reforms is a strikingly common feature amongst OECD countries. In Bulgaria, this concern has been voiced in previous strategies and specific tools have already been established, in particular the Council for Decentralisation of State Governance (CDSG). However, although well-intended, the council has not been effective, holding few meetings with a low rate of participation and a limited agenda (Box 4.3). According to the annual evaluation of the activities of the CDSG, it did not meet its priority objectives which were to serve as a place of dialogue between the central and local governments and to shape the national policy of decentralisation. The CDSG is not active enough and does not contribute to the decentralisation process. Since 2011, the implementation of the decentralisation strategy has been practically discontinued (MRDPW, 2016[11]).

However, international experience shows that having such councils can bring a lot of value to the multi-level governance process. It is proposed to reactivate the CDSG but with a different structure and role. This committee should be permanent and involve key ministries, the National Association of Municipalities in the Republic of Bulgaria (NAMRB) and other vital stakeholders. It would have a permanent secretariat co-ordinated by the Ministry of Regional Development and Public Works (MRDPW) or the Council of Ministers (CoM). Its role would include spearheading the monitoring and assessment of the progress of the decentralisation strategy and programme. It would also include promoting effective involvement of municipalities and civil society in the reform process and dealing with the strategic implementation of the strategy, not organisational matters. Indicators should be decided jointly between the members and updated regularly to remain relevant.

Conducting pilot programmes and experiments would demonstrate the effectiveness of reforms and pave the way for change on a larger scale. While this kind of reform process is slower than a “big bang” reform, it enables learning-by-doing and revision of decisions throughout the process, if needed (OECD, 2017[8]; 2019[9]).

Such an experimental approach could be useful for Bulgaria, both at the municipal and regional levels, to test the relevance of differentiated governance models, sets of responsibilities or funding mechanisms. There are some interesting experiences in OECD countries such as the “free commune experiments” in Denmark, Finland, Norway and Sweden (testing of the devolution of various functions to local governments), experimental regionalisation in Finland and Sweden and the “right to experimentation” in France which has been enshrined in the constitution in 2003 and regulated by an organic law the same year.

The content of Bulgaria’s current strategy is very comprehensive and gradual. However, despite this well-defined approach, it seems necessary to update the content of the strategy.

The current decentralisation strategy covers many important dimensions of decentralisation in an integrated and balanced way. In particular, it includes the 3 main and interdependent components of a decentralisation process (political, administrative and fiscal decentralisation) and is accompanied by a detailed programme of 4 objectives, 12 priority areas and 32 measures for implementing the strategy over 2016-19.

However, despite this well-defined approach, it seems necessary to update the content of the strategy. First, because several measures included in the 2016-19 programme have not been implemented. Second, because the 2016-25 strategy now needs to integrate the impact of the COVID-19 crisis and subsequent recovery packages. Differentiated territorial effects call for differentiated policy responses which should be targeted towards the most impacted regions and municipalities. The current critical juncture presents an opportunity for Bulgaria to review its multi-level governance framework and to take actions to enhance resilience at the regional and local levels. Third, because the strategy still needs some adjustments to promote a systemic and integrated approach across policy areas and government levels:

  • Rebalancing political, administrative and fiscal decentralisation: Although present in the previous strategy, the three dimensions of decentralisation were not well balanced in their implementation. Fiscal decentralisation, in particular, remains a weak component of past reforms. As underscored by the OECD, finding the right balance between these three dimensions is key to the process: ignoring or under-estimating one dimension may hinder the entire decentralisation process and undermine the benefits of decentralisation. In addition, decentralisation should not be seen as a collection of separate policies or measures but as a unique and comprehensive system of policies.

  • Addressing decentralisation in a “whole-of-government perspective”: Decentralisation does not concern only subnational governments but also the central government at the national and territorial levels when the central government is represented locally, as is the case in Bulgaria. The impacts of decentralisation on the central government are often underestimated and failing to consider this may be detrimental to the reforms. The fiercest opponent to decentralisation efforts is often the central government itself, as decentralisation may be perceived as a threat. A decentralisation reform implies anticipating profound changes to organisation, practices, culture and skills within the central government. It requires contemplating a renewed, more strategic role for the central government, one where it is less directly involved in service delivery and instead focuses on enabling, advising and providing assistance to ensure consistency. It should facilitate the work of local governments and occasionally help share best practices across local governments. The role of the central government should be also more focused on creating the conditions for proper co-ordination and alignment of policy objectives, monitoring the performance of regions and cities, and ensuring balanced development of all parts of the national territory.

  • Connecting decentralisation, regionalisation and regional development: The decentralisation strategy should be better connected to other regional development and planning strategies, including the National Regional Development Strategy (NRSD) 2012-22, the National Concept for Spatial Development (NCSD) 2013-25 and the Public Administration Development Strategy 2014-20. In addition, the regionalisation component of the decentralisation strategy should be front and centre. “Bundling” regional reform to municipal reform can better facilitate the reform process, given the strong interrelations between the two reform areas. Connecting municipal decentralisation reform to the need for a stronger regional level and vice-versa could make the entire reform process run smoother. Losses on one side may be compensated with gains on another. In other words, the creation of stronger planning regions, perceived as a threat by municipalities, could be compensated for by providing municipalities with more powers and resources. In the same vein, districts would lose some responsibilities (regional development) but could also gain new co-ordination functions.

In revising its decentralisation strategy, Bulgaria could also be inspired by the OECD’s “Ten guidelines for effective decentralisation conducive to regional development”. These guidelines can help policymakers to implement decentralisation reforms in a way that avoids major pitfalls (Box 4.6).

Figure 4.4 summarises the proposed process for renewing the multi-level governance (MLG) framework towards better regional development.

A frequent obstacle to achieving an efficient decentralised multi-level governance system is a weak or lacking, framework for intergovernmental co-ordination. In fact, in a decentralised governance system, there is strong mutual interdependence across levels of government. Outcomes of such a system depend, to a large extent, on how the complex relationships between levels of government are managed, i.e. on the quality of co-ordination across and within levels of government.

Vertical co-ordination between the central and subnational levels of government is key. OECD country experience illustrates the crucial need to set up formal and informal mechanisms to reinforce multi-level dialogue and foster effective and efficient co-ordination. This includes dedicated structures (permanent intergovernmental committees or fora) or contractual arrangements. However, establishing a multi-level dialogue is not an easy task and may be met with resistance. Managing “mutual dependence” requires a profound change of structure, practice and culture within the central government itself as well as within the local government (OECD, 2019[9]; 2017[8]).

One major tool for vertical co-ordination between the central government and local governments is the NAMRB (Stefanova, 2018[17]). The association acts as an intermediary in the interaction of local and central governments and as a platform for dialogue, policy reform proposals and negotiation, especially concerning public finance.

In addition to the NAMRB, there are some co-operation measures that have been established at the behest of the central government to specifically conduct regional policy including the Regional Coordination Directorate within the CoM, and the Central Coordination Unit within the MRDPW. At the lower level (but still under the CoM), a Regional Development Council was established with the participation of several ministries, district governors and representatives from the NAMRB. There are co-ordination networks in other sectors as well. For example, the Bulgarian Association of Municipal Environmental Experts, established in 1995, gathers environmental experts from more than 65% of the municipalities. It has become an important institutional actor in local environmental governance and has a significant impact on legislation, policymaking and knowledge exchange.

However, the potential of other vertical co-ordination mechanisms has not been fully explored in Bulgaria. The NAMRB alone is probably insufficient to address co-ordination issues between the central and local level, taking into consideration the diversity of municipal investment and development needs. While regional development policies are now more decentralised, the role of the central government is increasingly important for providing an overarching framework and guidelines and ensuring effective co-ordination (OECD, 2019[9]). In the context of the global and multi-dimensional COVID-19 crisis, co-ordination across levels of government is crucial as a co-ordinated response by all levels of government can minimise crisis-management failures (OECD, 2020[19]).

Creating a culture of co-operation and regular communication is essential to achieving effective multi-level governance and long-term reform. OECD countries have developed a broad set of mechanisms to promote co-ordination and collaboration ranging from soft instruments to more “binding” ones. Platforms of dialogue, standing commissions and intergovernmental consultation boards or councils, where actors from different levels of government and sectors can have formal dialogue, have proven to be effective in several OECD countries (Box 4.8).

Bulgaria could establish a more institutionalised permanent forum on multi-level governance between the central government and local governments, which would also involve representatives of the citizens, business, academia and other NGOs. This type of co-ordination platform will become even more necessary in the perspective of a reinforced regional level, both at the level of the districts and planning regions.

Formal instruments, such as contracts for regional development, are also helpful for building trust between parties and providing a long-term perspective (OECD, 2019[9]; 2007[23]; Charbit and Romano, 2017[24]). Several examples of “deal-making” or contractual arrangements are found in OECD countries: France has a particularly strong tradition of state-region planning contracts, although there are more recent examples in Australia (city and regional deals), Colombia (Contratos plans), the Netherlands (City Deals) and Poland (territorial contracts).

The design of these types of contracts needs to be as flexible as possible so that they can adapt to different circumstances and local characteristics. The key point is to specify the regional development priorities supported by contracts, possibly through a careful assessment of needs and opportunities. Another key issue concerning the effectiveness of these contracts is being able to guarantee the credibility of the commitments made within them. Constant enforcement and evaluation are essential for overcoming this challenge. Finally, contracts are also a way to involve civil society, such as citizens associations or businesses, in the decision-making process.

As stressed in the previous chapter, municipalities are key actors for economic and social development at the local level. However, there is room for improvement for municipalities in terms of promoting socio-economic development in areas under their jurisdiction. They could do more to foster this development if they were to have access to adequate financial and staffing resources to act more effectively. Similarly, municipalities could better promote socio-economic development if they were to improve their internal functioning and enhance co-operation with the central government, neighbouring municipalities, regional structures and civil society. In other words, they need more powers and capacities but they also need to improve their governance. To achieve this, it is proposed to take measures on each of the three dimensions of decentralisation, which are complementary and interconnected, as underlined above.

Political decentralisation aims to give citizens and their elected representatives more power in public decision-making and in formulating and implementing policies. This involves strengthening participatory governance at the local level through both elected officials (mayors, municipal councils and sub-municipal entities) and civil society (NGOs, organisations, citizens and businesses). In Bulgaria, several issues have been raised in this respect, in particular: i) the insufficient recognition and participation of localities in municipal activities ii) the minimal participation of civil society in the development, adoption and control over the implementation of municipal policies.

Sub-municipal institutions can be effective actors in reinforcing local democracy, bringing citizens closer to policymaking and political life, providing proximity public services and thus reaping the benefits of decentralisation. In particular, in the Bulgarian context, the mayors of most mayoralties are directly elected by the population, acting as important representatives of the voices of the population. They should by no means be left out of the decentralisation process.

Sub-municipal governance can be a very innovative tool if well designed and implemented. Bulgaria should make the most of its existing well-developed network of localities. It would allow maintaining a certain level of proximity, in particular in remote and isolated areas or, on the contrary, in large cities, to better address local needs in terms of services and to overcome issues related to community identity, historical legacies, traditions and local democracy. In particular, mayoralties and wards could represent a form of “intra-municipal decentralisation”, as experienced in several EU and OECD countries (Box 4.10). In many countries, such sub-municipal bodies play a role in providing services to communities, in assuring democratic representation and on pursuing a role of territorial identity and cohesion mechanism (Hlepas et al., 2018[29]).

Deconcentrating some functions and resources to the sub-municipal level, in particular via an independent budget, is one option available to help balance the workload of municipal administrations and free up their capacity to focus more on strategic tasks. “Service centres” could be established in villages to provide some basic services. This policy would also help reduce service delivery times for citizens and businesses, an objective identified in the public administration strategy (Government of Bulgaria, 2014[30]). Another recommendation is to increase the powers of village mayors regarding municipal property located on village territory. Finally, municipal council voting rules could be modified (for example, via the formation of electoral districts) to ensure better representation of villages (Bobcheva, 2008[31]).

The law provides instruments to foster direct democracy (referendum, citizens’ general assemblies, petitions) but, as underlined above, these are not common practice in Bulgarian municipalities, resulting in low civil society involvement in municipal activities. Bulgaria should strengthen the use of citizen engagement practices and promote transparency and accountability at the local level. To make decentralisation work, citizens should be empowered through the right to know and direct democracy provisions as underlined in the OECD’s ten guidelines for effective decentralisation (OECD, 2019[9]). This implies developing a stronger understanding of stakeholder engagement frameworks and building capacity among civil servants and decision-makers to engage with citizens, at all levels of government (Box 4.11).

Concrete measures could be adopted to reinforce civil society involvement in Bulgaria, including:

  • Amending the Public Consultation Act to simplify and facilitate the use of direct democracy instruments, e.g. by decreasing participation thresholds. The use of these tools should be stimulated by national and local governments (UPEE, 2020[33]).

  • Supporting the creation and functioning of territorially-based NGOs representing civil society.

  • Encouraging civil society to participate in consultation meetings, especially to discuss strategic and municipal development plans. This can be done through better communication activities and reporting on the outcomes of the meeting (providing feedback).

  • Establishing, by law, civil society consultative commissions (citizen assemblies, young assemblies, business assemblies) in municipalities to present civil society’s position on municipal activities. Several EU and OECD countries have established such commissions. The law should precisely detail the guidelines for their establishment, composition, budget allocation, use of funds and activities, as well as relations with the mayor and municipal council. Such commissions should have their independence and ensure a lack of potential conflicts of interest.

  • Establishing “local ombudsman”, besides the national ombudsman, to improve the dialogue between local authorities and citizens, and to enhance the opportunities for citizen participation in the planning of municipal policies. This has proven to be a successful measure in several countries according to Transparency International Bulgaria.

  • The national government should gradually include large cities in its Open Data Initiative and, in general, foster open government at the municipal level to increase the transparency of municipal policies, create data-based products and services, and encourage more active engagement of citizens in the development of municipal services and the decision-making processes at the local level (Government of Bulgaria, 2016[34]).

  • Make municipal information easier to access for citizens through attractive, relevant and up-to-date, interactive and user-friendly websites (to respond to citizens’ requests for information).

  • Participatory planning and budgeting should be promoted and supported by the central government as it offers a tool for educating, engaging and empowering citizens and strengthening demand for good governance. Participatory budgeting in particular has the potential to make municipalities more responsive to citizen needs and preferences and more accountable to them for performance in resource allocation and service delivery (OECD, 2019[35]). Participatory budgeting practices could be encouraged through the continuity of the Pilot ‘Citizen Budget’ Initiative.

As described in Chapter 3, in spite of intentions to push for more decentralisation in Bulgaria, administrative decentralisation has been limited thus far. Bulgaria remains a centralised country with low levels of local expenditure and investment, which are moreover largely driven by the central government. Furthermore, the division of powers and responsibilities across levels of government has become increasingly unclear and complex, highlighting a need for clearer rules and principles. Administrative decentralisation is further undermined by a weak administrative and strategic capacity at the municipal level and aggravated by the lack of co-operation between municipalities. Several of these deficiencies are already well identified in the 2016-25 decentralisation strategy and the 2016-19 programmes which contain several concrete measures to correct them. However, many measures are still pending and should be implemented for the second phase of the decentralisation strategy and included in a revised programme for 2021-25. They should be complemented by additional measures which are detailed below.

A review of responsibilities and functions assigned to the different levels of government should be undertaken to clarify the breakdown of responsibilities and to assess the relevance of delegating, decentralising or recentralising some tasks. This reflection is urgent because delegated functions are increasingly burdensome when they are underfunded, as is currently the case at the local level in Bulgaria. Furthermore, numerous additional and unplanned tasks are continuously transferred to municipalities by line ministries and state agencies without a clear view of the impact in terms of charges and constraints. As underlined above, there is neither a clear rationale on whether carrying out these tasks at the local level is relevant, nor whether municipalities have the capacity to handle them. It is also urgent to conduct a review in the context of strengthening governance at the regional level. A comprehensive approach to the system of responsibilities and functions at all levels of government is needed.

The review should better define spending responsibilities. This involves revising the system of delegated tasks. In some cases, responsibilities may have strong local aspects but are fully considered as delegated and centrally funded, thus leaving local authorities with little to no decision-making power or room to manoeuvre. Rationalising the system of responsibilities could ease the burden of some delegated functions imposed on municipalities, enlarge spending autonomy in some delegated functions (e.g. education) and transfer new exclusive tasks whose implementation falls more to the local level, according to the subsidiarity principle.

The review would be accompanied by a normative document that clarifies central, regional and local responsibilities and functions (financing, regulating, implementing or monitoring) and provides principles and guidance. Indeed, the way responsibilities are shared should be explicit, mutually understood and clear for all actors, as underlined by the OECD’s ten guidelines for effective decentralisation (Box 4.6) This also permits the effective assessment of supply of, and demand for, administrative capacities, based on a common and shared document (Stefanova, 2018[17]).

The 2016-25 Decentralisation Strategy and the 2016-19 Decentralisation Programme already contain some examples of tasks which could be transferred to municipalities, for example, in the area of public order and safety (policing powers, civil security for the protection in floods, fires and other local natural disasters). A detailed analysis of functions within the areas of education, social protection, health and culture should be conducted to identify some delegated or shared tasks of local relevance which could be then converted into municipal-exclusive responsibilities. The analysis should also identify areas where municipalities could be involved as partners and “co-providers” (shared responsibilities) for example, in participating in setting the standards for the provision of educational, health and social protection services.

An additional option would also be to introduce asymmetric decentralisation. Today, according to the current Local Self-Government and Local Administration Act, there are no municipalities with “special” status, with the sole exception of the Stolitchna municipality, which is also Sofia (capital) district. Therefore, all municipalities, except Sofia, must be treated in an equal manner. All have the same set of responsibilities and must provide the same level and quality of services regardless of their size. Bulgaria could experiment with flexibility and asymmetric decentralisation, in particular, by assigning differentiated responsibilities to municipalities according to their characteristics, needs and capacities. Large, capable municipalities would have higher budget responsibilities compared to smaller ones. This could be based on “municipal categorisation” (which already exists in Bulgaria and could be adapted and improved in this perspective) and be conducted through pilot experimentation.

Bulgaria could learn from several OECD countries that have already implemented or are experimenting with such approaches, such as Colombia, the Czech Republic and Denmark. In Denmark, for example, a policy experiment known as the Free Municipality initiative was launched first between the years 2012 and 2015, and later extended until the end of 2019. In the experiment, nine municipalities were granted exemptions from government rules and documentation requirements, to test new ways of carrying out their tasks. The main focus of the experiment was on simplification, innovation, quality and a more inclusive approach. The Free Municipality experiment is currently being evaluated until the end of 2020, to form the basis for potential future legislation on de-bureaucratisation for all municipalities (Allain-Dupré, Chatry and Moisio, 2020[36]; OECD, 2017[6]). However, asymmetric governance arrangements should be conducted in a prudent manner so as to avoid common pitfalls that include preferential treatment and creating institutional complexity, as was the case in the Czech Republic. This could lead to the creation of a “multi-speed municipal system”, with favoured and less favoured municipalities, which would merely recreate significant “legal” inequalities. Asymmetric decentralisation may also diminish the central government’s ability to pursue national objectives and engage in the co-ordination of public policies. Finding a balance between heterogeneity and equity aspects is key, alongside maintaining effective vertical co-ordination across levels of government (Allain-Dupré, Chatry and Moisio, 2020[36]; OECD, 2017[6]).

The increasing role of Bulgarian municipalities in public investment, in particular since the country’s entrance into the EU, must be acknowledged. However, the level of local investment remains low and highly sensitive to central government and EU funding (with municipalities finding it difficult to meet co-financing requirements, however). Local public investment is impeded by the increase in delegated functions and underfunded mandates. This chronic underinvestment may lead to the degradation of local infrastructure assets, higher upgrade costs when repairs are eventually made and generally negative effects on economic growth and employment.

To increase municipal capacity for investment, it is necessary to improve the fiscal decentralisation framework in particular, by increasing self-financing capacity, capital transfers (both from central government and the EU) and local-level borrowing capacity.

The new Public Investment Programme “Growth and Sustainable Development of Regions”, established by the central government to complement programmes co-financed by EU funds, will certainly facilitate investment financing. The prevention of overlap and double financing will be provided at the project level. A special inter-ministerial council has been created at the ministerial level, with the participation of the NAMRB, to assess and prioritise the submitted project proposals.

Beyond the need for additional financial resources to cover investment needs, there are several gaps that should be addressed to increase public investment and its effectiveness. Primary among these are governance gaps. With the increasing role of municipalities in public investment, investment has become a shared responsibility across levels of government. Managing inter-dependencies is crucial for strengthening the efficiency and effectiveness of public investment. There is a need for effective co-ordination among levels of government (OECD, 2013[37]). OECD member countries have acknowledged the importance of better governance for public investment by adopting the Recommendation of the Council on Effective Public Investment across Levels of Government in March 2014 (OECD, 2014[38]).

The OECD Recommendation could help Bulgaria to address systemic challenges for public investment in the context of its decentralisation and regionalisation reforms. All areas covered by the Recommendation are instrumental in ensuring effective public investment across levels of government for regional development, although looking at all areas in detail goes beyond the scope of this report. Several OECD countries have used the Recommendation to mainstream their core messages on the governance of regional policy within their administration among Ministries of Finance and line ministries, examples of which include Australia, Colombia, the Czech Republic, Morocco, the Slovak Republic and Sweden. All OECD countries have adhered to the OECD Recommendation, as well as four non-Member countries: Brazil, Colombia (now a member country), Morocco and Ukraine. Peru has expressed its interest in adhering. Discussions to engage more non-members are underway. Bulgaria could also officially adhere to the OECD Recommendation. In this context, Bulgaria could conduct an in-depth multi-level review of its public investment framework (see the example of Colombia (OECD, 2016[39])). Such analysis provides an assessment of the strengths and weaknesses of their public investment capacity and sets priorities for improvement.

Some bottlenecks representing key challenges for further decentralisation have been identified above, in particular the lack of sufficient and adequate human resources, weak strategic capacity, the difficulty in delivering high-quality services and the lack of transparency and integrity to mitigate corruption. Some concrete measures to address these challenges could be integrated into the 2021-25 Decentralisation Programme.

The lack of human capacity is currently a significant bottleneck for effective decentralisation and could put the decentralisation reform at risk. The following measures are suggested:

  • Conducting an in-depth review of human resources capacities in municipalities to engage municipalities on strategic workforce planning and management. Implementing strategic workforce planning and management, with the support of the central government, could help plan the composition of the municipal workforce in terms of numbers, competencies and skills. An observatory of municipal staff could also be set up. The review should assess employment conditions (salaries, recruitment, training opportunities, promotion and career development, mobility, etc.) in municipalities as well as across the national territory to identify disparities between municipalities. Open, competitive hiring and merit-based promotion should be ensured, as stressed in Guideline 4 “Support subnational capacity-building” of the OECD Making Decentralisation Work report (OECD, 2019[9]).

  • Engaging in an ambitious, systematic and continuous capacity-building programme for local governments. At the same time, the lack of human capacities at the subnational level cannot be used as a pretext for not decentralising or for limiting local autonomy. While capacity development often comes from learning-by-doing and sharing the results, it is also the result of designing an appropriate framework and instruments for capacity-building. In Bulgaria, framework conditions and training tools adapted to local needs are still weak as underlined above. As in many countries with weak municipal skills, substantial efforts for capacity-building are needed in areas such as good governance, regulation and procedures, budgeting, accounting and sound financial management, tax collection and management, investment planning, management of property assets, strategic planning, formulation of local development policies, public procurement, civil society participation and public control, public ethics, transparency and anti-corruption practices, leadership and management, evaluation and performance, and in management of new responsibilities if further transfers are decided. The 2014-20 Strategy for the Development of Public Administration has integrated the need to reinforce training at the local level, which is a positive step. This priority could also be included in the decentralisation strategy and result in the preparation of a national programme for human resources management and training at the local level.

  • Significant effort should be put on upgrading the strategic capacity of municipal employees, managers and elected representatives (mayors and councillors). As underlined above, insufficient strategic capacity at the municipal level is particularly problematic in the context of EU cohesion policy and the need for a more localised approach to priority setting and the strategic planning process. This remains a pressing need for the next programming period, alongside amendments to the Regional Development Act and the drafting of new regulations for its implementation. Municipalities are expected to develop integrated investment concepts, in accordance with the development of goals and priorities at the planning region and national levels. Municipalities, therefore, need to develop an internal capacity to set strategic goals, priorities, as well as to develop policy actions, project pipelines and explore funding resources for implementing the plans.

  • Assessing the current training system existing at the municipal level to improve it and better integrate the specific need of local (and regional) actors. The Institute for Public Administration could play a key role in this respect. It could develop alliances with academic centres to be able to provide training in any part of the country but also with the NAMRB and other NGOs to establish a network of training institutions over the whole territory, able to train municipal (and regional) actors. In this regard, the experience of the French National Local Civil Service Centre (Centre national de la fonction publique territoriale, CNFPT) is instructive. It is now a worldwide best practice in terms of implementing an efficient single vocational training system for local government workers to cope with the needs brought about by successive decentralisation reforms. Other countries such as Chile, Colombia, Greece, Italy, Lithuania and Spain have also set up dedicated public governance schools, programmes or academies for municipal and regional training, whose experience can be helpful for Bulgaria.

  • Making the most of digital tools for capacity-building of municipal staff and elected representatives. Bulgaria could consider developing web-based tools and other e-learning and capacity-building tools for local governments (elected and administrative staff). Some OECD countries have also adopted new IT tools or joint e-government platforms to narrow the gaps in capacity across regions or localities and facilitate peer learning. For example, KiTerritorial is a web-based toolkit developed by the Department of National Planning (DNP) in Colombia that offers specific instruments to support local leaders in the formulation of their territorial development plans (PDT). The Academia de Capacitación Municipal y Regional, a programme of the Sub-Secretary for Regional Development (SUBDERE), provides training to municipal and regional employees in a wide range of areas under 3 forms: face-to-face (100% classroom training sessions), semi-attendance (programmes taught under blended learning mode (b-learning, i.e. combining classroom classes and non-classroom classes) and virtual spaces (100% e-learning through a virtual platform and distance learning methodologies).

It is widely acknowledged that the quality and efficiency of management and service provision vary substantially among Bulgarian municipalities because of significant disparities in terms of financial and human capacities. However, there is no clear view of the current quality of local public services across the territory. This situation also results from the lack – or lack of use – of systematic and general management framework of municipal services, i.e. tools to monitor and assess the performance of local public services, including for delegated functions. The decentralisation process could widen these disparities in terms of service access and quality. In the context of reinforced decentralisation, the central government must address this challenge with appropriate instruments aimed at monitoring, diagnosing and improving the performance of local services. The following measures could be explored:

  • Carrying out a comprehensive and integrated national diagnosis of the quality of local public services across the territory in different sectors. As a first step, Bulgaria could conduct a study to assess access to, and the quality of, some local public services across the national territory, to highlight the main disparities and capacity gaps.

  • Developing a comprehensive and uniform municipal services management and performance system, with a particular focus on outcomes for local and regional development. Bulgaria could learn from other EU and OECD countries that are confronted with the same challenges and who have developed systems and procedures for monitoring and evaluating local public services, based on clear, robust and measurable indicators. This quality-oriented system should be developed centrally but should be place-based, meaning it should emphasise outcomes instead of just outputs. It should be noted that the quality of service should also emphasise outcomes instead of just the outputs, i.e. the services vis-à-vis the local needs or expected targets. Along this line, a quality-oriented system of municipal service delivery must also be place-based. Bulgaria could draw on existing effective performance measurement systems established by OECD countries such as Canada (Ontario), Denmark (Danish Joint Municipal Management Information System, FLIS) or Norway (KOSTRA) (OECD, 2017[6]).

  • This approach could be complemented by “municipal service charters”. Service charters are documents that inform citizens of what to expect from a given service and commit the institution to certain quality standards. They can favour flexibility and autonomy for municipalities to tailor their policies to local preferences, such as in the Netherlands, the UK or Andalucía in Spain (OECD, 2017[6]).

  • Ensuring minimum standards of municipal services to reduce territorial disparities. To deal with the risk of further decentralisation widening existing disparities among municipalities, Bulgaria could implement a methodology of minimum standards. This would be used to define a basic and guaranteed level of provision in terms of quantity and quality of some municipal services, similar to Chile’s SEMUG system (Servicios Municipales Garantizados). Beyond increasing the efficiency and effectiveness of public service delivery and reducing disparities across the territory, such a system, if well managed to avoid rigidity, bureaucracy and the risk of excessive additional central control, can potentially increase municipal accountability by making local governments more transparent and responsive to both central government and citizens (OECD, 2017[6]).

Controlling corruption is one of the most important preconditions for ensuring the success of decentralisation reform. Unless this is managed more effectively, decentralisation reform will be at risk, especially in a country already confronted with a high level of corruption at national and local levels. The analysis of the failures of the municipal administration show the urgent need for more transparency in how and where public funds are spent (IME, 2016[40]). There are two areas, among others, in which Bulgaria should be particularly active to support decentralisation: an efficient and transparent procurement system and effective internal and external audits.

  • An efficient and transparent public procurement system is needed to strengthen integrity, enhance accountability and thus support decentralisation. The ongoing project to adopt an e-procurement system is an important step towards increasing transparency and strengthening the procurement process (Public Procurement Register and the Public Procurement Portal). Additional measures that could be introduced include: providing more guidance to municipalities for procurement; encouraging and supporting willing municipalities in creating purchasing alliances, framework agreements or central purchasing bodies; reinforcing training programmes to professionalise procurement (with the support of the NAMRB); and providing hardware upgrades and software updates. Several measures are included in the National Strategy for the Development of the Public Procurement Sector in Bulgaria over 2014-20 (Government of Bulgaria, 2014[41]).

  • Improving external and internal audit mechanisms adapted to the decentralisation context. Budgetary and financial supervision and control are essential in a context of increased fiscal decentralisation and greater autonomy. Bulgaria has already developed a system of external and internal audits, which is adapted to the budget size of municipalities. The National Audit Office in particular carries out financial audits for municipalities with large budgets. Some improvements could be made to both internal and external audits. In particular, the state financial supervision and control system over subnational governments should be adapted to the new decentralisation context. The districts could carry out a budgetary control (a posteriori), in addition to a legality control, based on the French prefecture model. However, it should be done following the principle of local autonomy and in liaison with the National Audit Office (NAO). In parallel, inter-municipal co-operation to establish joint internal offices should be encouraged, especially for small municipalities. The oversight role of municipal councils on budgetary issues is also critical to promoting fiscal transparency and accountability. It should be developed while paying particular attention to reinforcing the capacity of councillors in the budget process, which is often low. Finally, democratic oversight of civil society over the municipal budget should be developed by appropriate information and control measures. Each municipality should be able to provide an annual, digital evaluation report on the state of local finance.

While the merger of municipalities could be envisaged for some very small municipalities that no longer have sufficient capacity to provide the delivery of basic services to the population (which would then be mayoralties), it may be politically difficult to conduct. Another solution would be to have a proactive policy to encourage inter-municipal co-operation in rural, urban areas and metropolitan areas, as well as to improve urban-rural linkages. Inter-municipal co-operation would be particularly beneficial in enabling small municipalities with scarce public resources to efficiently deliver quality public goods to their citizens and to realise economies of scale (around 25% of municipalities according to Kalfova (2017[42])). It could also bring added-value to municipalities belonging to urban areas to reinforce urban and rural linkages as well as to metropolitan areas.

Promoting inter-municipal co-operation should be a priority in order to generate economies of scale, efficiency and quality gains and costs savings. Additionally, with the advent of the new programming period and new regional development policy, municipalities need to innovate and build greater capacity at an inter-municipal scale.

Many national governments in the EU and OECD promote inter-municipal co-operation by improving legal frameworks, spreading the values and benefits of co-operation amongst mayors and providing incentives for partnership (Box 4.13).

Bulgaria could take many actions to advance this agenda, including:

  • Conducting a review of the current framework for inter-municipal co-operation. The regulatory framework for inter-municipal co-operation exists in Bulgaria but is not widely used. A review of the legal framework could be carried out to diagnose the effectiveness of the forms of co-operation which are proposed and provide recommendations for improvements. There are various formats for inter-municipal co-operation in EU and OECD countries, which range from informal co-operative agreements (single or multi-purpose) with no judicial framework to highly formalised arrangements (supra-municipal authorities) with delegated functions and even taxing powers, such as in France. Other shared services arrangements are common in countries such as Australia, Ireland, New Zealand and the UK (shared services programmes) (Figure 4.6).

  • Bulgaria would perhaps need a more integrated form of partnership, going beyond the status of a municipal association through the creation of a public law entity, with a specialised or territorial scope. Some competencies, such as spatial planning and economic development, could be transferred from the municipalities to inter-municipal bodies, as is the case in the French model (Box 4.14).

Different models of funding are associated with these different forms of co-operation. Establishing a more integrated model under public law allows for access to a variety of sustainable sources of funding (e.g. central government grants and subsidies, user charges and fees, easier access to EU funds), in addition to municipal contributions. The challenge with this type of formalised and integrated co-operation structure is to avoid duplications and overlaps between the municipal and inter-municipal levels, as has been the case in France for example. Experiences from countries with strong inter-municipal arrangements show that inter-municipal co-operation is not without its challenges, which include the creation of an additional hierarchical layer, the risk of a democracy deficit and lack of accountability and transparency, and the risk of creating a harmful common pool, which can lead to increased costs and inefficiencies (OECD, 2020[5]; Allers and van Ommeren, 2016[45]).

  • Establishing financial and non-financial incentives for inter-municipal co-operation. Voluntary co-operation could be encouraged with temporary grants that cover part of the cost for setting up such arrangements. Other fiscal incentives could include special subsidies for inter-municipal projects (or a special fund), bonus grants for municipalities that generate savings through co-operation or privileged access to grants (e.g. infrastructure grants). Non-fiscal incentives may include the provision of consulting, technical assistance, advisory services, the promotion of information sharing or the provision of specific guidelines (toolkit) on how to manage such collaboration (OECD, 2017[8]). The districts could also play a role by raising municipalities’ awareness of the benefits of inter-municipal co-operation, legal frameworks, tools and incentives, and by fostering dialogue and supporting municipalities wishing to move in that direction. In France, supporting inter-municipal co-operation has been an important mission of the departmental prefects.

  • Promoting all forms of partnerships. Besides formalised inter-municipal co-operation, there is a number of more flexible soft co-ordination and co-operation arrangements which could be promoted in Bulgaria and which could be best suited to achieving particular policy goals or pertinent needs, or to make the most of particular investments. These include the establishment of joint authorities, co-ordinated investment strategies, polycentric co-operation in urban areas, rural-urban partnerships, cross-border co-operation and platforms for cross-jurisdictional dialogue and co-operation (OECD, 2019[9]). Currently, there are also some informal interactions in Bulgaria – meetings of mayors and senior administrative officers, technical committees and development committees. These less formalised co-operation mechanisms could also be further explored and supported. Examples include: joint tax and fees administration; server rooms/data centres; spatial planning; back-office and administrative function, for example, “consolidated internal audit offices for groups of smaller municipalities to ensure that the offices are large enough to be effective (Hawkesworth et al., 2009[46]); joint tax collection offices; joint audit offices; joint borrowing, or joint procurement. The latter would be very promising, as municipalities constitute a large number of contracting entities with relatively uniform but fragmented needs, especially in small municipalities, which often lack capacity. Among other benefits, joint public procurement improves securitisation (a specialised lawyer in charge of procurement can better respond than several people performing this task) and also allows for substantial cost savings.

  • Using the EU Cohesion Fund as a driver for inter-municipal co-operation. The ITI and Integrated Urban Development instruments could be an efficient way to facilitate inter-municipal co-operation in 2021-27. While the mechanism is available, the role of the national-level co-ordination body will be critical in facilitating actual co-operation (Box 4.15). A low propensity for co-operation constitutes a serious risk to Bulgaria’s capacity to absorb the structural and cohesion funds. Therefore, promoting inter-municipal co-operation should be presented as a way to improve access to EU funds. In the future, if inter-municipal legal bodies were to be created, they could become intermediary beneficiaries of EU cohesion funds.

  • Implementing new types of contracts and partnership agreements to encourage inter-municipal co-operation. Bulgaria could learn from the experience of countries having created such contracts. Portugal, for example, has established a total of 22 Pacts for Territorial Development and Cohesion for the 2014-20 programming period, involving EUR 1.15 billion. These multi-level governance contracts are used to promote inter-municipal co-operation as they are aimed at consolidating the financial and strategic capacities of inter-municipal co-operation entities (created in 2003 as Comunidades intermunicipais). There is now a strengthened sub-regional level of inter-municipal co-operation in Portugal, which has enhanced capacity and increased the relevance of their interventions (OECD, 2020[5]).

Co-operation and co-ordination should be promoted to improve the governance of functional urban areas (FUAs) by fostering rural-urban linkages. This is crucial considering Bulgaria’s emphasis on reinforcing secondary cities and creating a more balanced polycentric network of cities. Cities need to be further supported as drivers of growth, creativity and innovation. However, this support should not be limited to the administrative boundaries of cities but rather should account for their functional urban centres and close rural areas, which could both benefit from the urban-rural linkages. In the OECD, 80% of the rural population live close to cities. Urban and rural areas enjoy different and often complementary assets and better integration between these areas is important for socio-economic performance. Rural-urban partnerships can enhance and better manage rural-urban relationships (OECD, 2013[47]). EU integrated territorial investment (ITI) mandates that funding based on partnerships such as ITI are tailored to place-specific features and outcomes and go beyond traditional administrative boundaries to co-operate and co-ordinate actions and achieve shared goals. The ITI approach in Bulgaria should clearly integrate the fostering of rural-urban interactions (OECD, 2016[48]).

A special focus should be put on improving the governance of metropolitan areas through more co-operation and co-ordination. As described in Chapter 3, there is no metropolitan governance system in Burgas, Plovdiv, Sofia and Varga, despite the fact that they suffer from internal disparities and fragmentation of planning and public policies in areas such as transportation, economic development or the environment. OECD empirical research has shown that for a given population size, a metropolitan area with twice the number of municipalities is associated with around 6% lower productivity. This effect is mitigated by almost half when there is a metropolitan level governance body established (Ahrend, Gamper and Schumman, 2014[49]). Therefore, implementing metropolitan governance arrangements helps to address the issue of fragmentation and to foster economic and inclusive growth (OECD, 2015[50]; 2015[51]). A recent OECD study provides new statistical evidence showing that, on average, more administratively fragmented metropolitan areas have higher spatial segregation of households by income (OECD, 2016[52]).

To make the most of urbanisation and agglomeration economies, an increasing number of countries are implementing differentiated governance structures for metropolitan areas. Currently, around two-thirds of the metropolitan areas in the OECD have a metropolitan governance body. There are different forms of co-operation arrangements in metropolitan areas, ranging from soft (dialogue platforms/informal/soft co-ordination) to the more “stringent” in institutional terms (supra-municipal body, metropolitan cities) (OECD, 2014[53]; 2015[50]). While there is no “one-size fits all” model but rather a range of models that vary based on territorial and institutional contexts, more integrated and strategic forms of inter-municipal co-operation structures are needed for these areas to cope with metropolitan issues. Some elements are essential to ensure effective metropolitan governance including political representation, geographic boundaries that match boundaries of the economic region (functional area), clear assignment of expenditure responsibilities and revenue sources, and decision-making power, including some fiscal autonomy.

Although progress towards more institutionalised and integrated metropolitan governance has been observed in numerous EU and OECD countries, it has not been without difficulty. In Finland, for example, metropolitan governance reforms for Helsinki and ten other urban areas have been planned for many years but have yet to be realised. Indeed, most metropolitan governance reforms in the OECD area have triggered, and still do, intense political debates and controversies as they hinge on the specific national and municipal history as well as cultural and socio-institutional frameworks. Various factors explain strong resistance to metropolitan governance reforms: strong local identities and antagonisms; vested interests of politicians and residents; a lack of trust between municipalities which have “historically competed over residents, enterprises and jobs”; opposition from higher levels of subnational governments (regions) which tend to compete with metropolitan bodies; local financing systems; and potential costs of reforms (OECD, 2017[8]). These factors explain why central governments tend to increasingly take charge of metropolitan governance reforms and thus why many metropolitan reforms are top-down in nature. Many regulations and initiatives have been taken over the last five years to promote metropolitan governance reforms: New Zealand (2010), Japan and Turkey (2012), France and Italy (2014) and Poland (2015).

For Bulgaria, given the lack of prior experience concerning inter-municipal co-operation at the metropolitan level, it is recommended that any first steps taken are gradual, experimental and asymmetric in approach. Several OECD countries have followed such a path (Allain-Dupré, Chatry and Moisio, 2020[36]). Bulgaria could support the development of governance pilot projects for its four metropolitan areas (and even for other large FUAs if they wish to participate in the experiment).

These experiments could be implemented according to the following principles:

  • No “one-size-fits-all” approach: A flexible and asymmetric metropolitan governance model (“à la carte”) could be proposed and discussed with the different metropolitan areas: supra-municipal entities (inter-municipal co-operation bodies), co-ordination and dialogue platforms, associations or strategic planning partnerships, sectoral or multi-sectoral agencies. In France, for example, there are several models of co-operation for urban areas and additional differentiated models within the metropolitan areas (Box 4.16).

  • A consultative bottom-up approach: It will be necessary to raise the awareness of different stakeholders about the benefits of metropolitan governance (municipalities, citizens, businesses, etc.) and to engage in a dialogue about the best governance model for the metropolitan area and the responsibilities which could be carried out. Metropolitan bodies generally cope with a wide variety of urban development issues such as economic development, spatial planning, housing policy, public transport and urban infrastructure development. Transport governance and spatial planning governance are respectively the two main fields of work for 70% and 60% of OECD metropolitan governance bodies (OECD, 2015[50]). Bulgaria could assign these two priorities as the main functions of its future metropolitan areas, in relation to economic development (metropolitan master plans and strategies).

  • Decision-making and capacity: Regardless of their form, these entities need to have decision-making authority, sufficient administrative capacity and adequate funding to ensure effective implementation of their responsibilities. To begin, specific tax regimes or fees for metropolitan areas could be promoted without taking other resources away from the municipalities (e.g. transport, pollution tax). The financial model should include equalisation mechanisms within metropolitan areas to foster equity and solidarity between municipalities.

  • A “deal-making approach”: Contractual arrangements specifically targeting metropolitan areas could be developed. The UK has an interesting model where urban areas are governed through “tailored arrangements” between national and “combined” local authorities, called “devolution deals”. This approach has been replicated in other OECD countries (OECD, 2020[26]). For example, Australia adopted the City Deal approach in 2019 and 9 other City Deals have since been agreed upon to be operational over a 10-20-year period (Box 4.16). Bulgaria could conclude such partnership agreements or contracts between its largest metropolitan areas.

Reinforcing fiscal decentralisation was a main priority of Bulgaria’s first decentralisation strategies and programmes in 2002-05. An in-depth transformation of the local financial system has been engaged but fiscal decentralisation reform has halted in midstream, slowed down by the 2008 global economic crisis. Since that period, no major improvements have been made despite the commitments of the successive decentralisation strategies and programmes.

To a certain extent, the current situation gives the impression that there is no national vision or ambition for large-scale and comprehensive local finance reform in Bulgaria. Fiscal decentralisation is often the missing link of decentralisation reforms and its importance in ensuring successful reform is widely underestimated (OECD, 2017[8]; 2019[9]). Fiscal decentralisation needs to be better conceptualised within a strategic framework. On this basis, a road map and implementation plan for fiscal decentralisation should be prepared and discussed with all key stakeholders. A special working group on fiscal decentralisation could be set up with key ministries, subnational government associations, business and citizens’ associations, and universities, to name a few.

Municipal revenues should be increased to avoid underfunded mandates (the “connection” or “matching principle”) and boost local investment but also in the perspective of increased decentralisation. In any case, beyond the need for sufficient revenues to cover spending needs, there is also the necessity to provide municipalities with the ability to manage resources with some autonomy and flexibility. According to the OECD’s ten guidelines for effective decentralisation (OECD, 2019[9]), increasing fiscal autonomy of subnational governments in managing their revenues, if properly designed and implemented, has many benefits, including improving the quality and efficiency of spending, increasing accountability, ensuring a better mobilisation of local resources, and others. But, if not well managed, enhancing fiscal autonomy may also have some drawbacks (e.g. increased fiscal disparities, diseconomies of scale, lack of capacities, risk of greater fiscal instability) that need to be taken into consideration when conducting a fiscal decentralisation reform. As a result, further fiscal decentralisation also calls for better equalisation mechanisms and fiscal rules, which should be considered as a necessary corollary to fiscal decentralisation.

A comprehensive approach to assessing the local finance system should be adopted, i.e. not only looking at the local tax system but to the overall financial system, including grants, taxes, user charges and fees, property income, equalisation mechanisms, borrowing, fiscal rules and financial management. It is proposed below to focus on four specific dimensions: the system of grants, local taxation, equalisation, borrowing and fiscal rules.

The government could consider the following recommendations in its future decentralisation strategy and programme:

  • Increase the level of central government grants and subsidies (operating and capital transfers). Despite a significant increase in grants over the last years, central government transfers are still insufficient to cover all of the delegated functions. Bulgaria should proceed with an in-depth review of financing needs for all delegated functions, including those that are transferred by secondary legislation, to progressively adjust the level of funds to the needs. Bulgaria could increase support for structural reforms on all fronts to raise productivity and boost convergence (OECD, 2021[55]). In the education sector, for example, there is room for increasing public spending, which remains amongst the lowest level in the EU. Higher spending could further strengthen the teaching of digital skills and the modernisation of the education system (IMF, 2020[56]; OECD, 2021[55]). The government should also reconsider the system of capital transfers to increase the level of funds available for public investment (in particular, to provide co-financing for EU projects) and to target these funds toward quality projects that are developed based on strategic programming and planning (Houbenova-Delisivkova, 2017[57]).

  • Guaranteeing the level of funds to adequately finance delegated functions and avoid underfunded mandates. The assignment of revenues should be consistent with functional responsibilities to avoid structural deficits, risk of fiscal distress and insolvency as well as the downgrading of local public services. The division of financial responsibilities should ensure that there are no unfunded or underfunded assignments or mandates. National governments should contribute to the local government system when devolving new tasks to subnational authorities or when additional costs arise from a change in national legislation or due to extraordinary events and crises that are out of the control of local governments. Bulgaria could also introduce measures to mitigate or even reverse the use of unfunded or underfunded mandates, ensuring that there is no transfer of charges without the adequate transfer of funding and that the compensation should be consistent over time. In addition, all transfers of additional functions should be negotiated with the NAMRB to assess its relevance and find adequate fiscal and sometimes technical compensation.

  • Other OECD countries are often confronted with this issue and Denmark can be considered good practice in this respect. In fact, there are two long-established and fundamental “compensation principles” in Denmark: the expanded total balance principle and the budget guarantee scheme. The first one requires the central government to compensate local authorities with extra grants whenever new national legislation has an impact on local expenditure. Conversely, resources must be refunded where new national legislation has the opposite effect. The second principle compensates local authorities for additional expenditure resulting from external factors that are outside local government control (OECD, 2017[6]).

  • Giving municipalities more autonomy in the use of grants and subsidies. Bulgarian municipalities should enjoy more freedom in deciding how to use grant funding, without being excessively constrained by strict guidelines, norms (generally defined nationally) and control from the central government. This should apply even if the grants are earmarked to specific sectors. Excessive use of earmarked grants is generally associated with low flexibility and low efficiency, particularly when the grants do not require matched funding to align with local preferences and address local needs (Bergvall et al., 2006[58]). Beyond exploring ways to include more flexibility in the use of grants (such as the 2018 reform concerning unused funds), the government could envisage shifting from earmarked grants to general purpose grants in some sectors. For capital grants, to break the silos generated by specific grants which are not conducive to effective public investment, Bulgaria could experiment with moving away from the model of conditional and specific grants and subsidies towards adopting general capital grants based on a formula. This would allow municipalities to finance integrated programmes that include different local development projects.

From a long-term perspective, raising local tax rates will not help with the fiscal conditions of most local governments. Structural issues of high reliance on central transfers cannot be overcome without changes to the existing local tax system to reinforce the tax autonomy of local governments and increase the share of tax in municipal revenue. Several potential avenues for reform are presented below for reflection, needing further analysis, concertation and discussion:

  • Improving the performance of the current system of local taxes. The taxing power of municipalities could be enhanced in several ways, including by giving more power to municipalities to set the local tax base and provide tax breaks and preferences. Municipalities think that the existing tax breaks set by the central government do not provide real incentives for taxpayers and that these breaks should be decided on at the local level (NAMRB, 2018[59]). Local decision-making power regarding tax breaks would give local authorities the incentive to expand their fiscal space to effectively carry out local policies. All taxes could be reviewed and screened to identify room for more autonomy and optimisation. Small taxes may have an underexploited potential.

  • During this review exercise, special attention should be given to property taxation as there is great potential for Bulgarian municipalities to raise additional revenues from this tax. Property tax is the cornerstone of local taxation in many countries. The merits of the property tax are regularly praised by economists: visibility, lack of tax export, productivity thanks to the stability of tax bases and solid return on tax collection, lack of vertical tax competition by exclusive or priority allocation to the municipal level, implicit progressivity (property values rise alongside the revenue of their owners) and horizontal equity are just a few acknowledged benefits. However, the implementation and management of property taxation face many obstacles, such as the complexity of valuation methods and the risk of implicit transfers. Indeed, reforming the property tax system is particularly complex but also politically risky for municipalities, as property taxation is particularly unpopular with taxpayers (Blöchliger, 2015[60]; OECD/KIPF, 2016[61]; OECD, forthcoming[62]).

  • Some improvements have already been conducted (see above) but more could be done to increase the performance of the property tax. Some proposals have already been made such as revising the current assessment system to better reflect the market value of the properties (e.g. moving from a standardised assessment system to a place-based system, that captures the real value of the local market; using indicators that capture the drivers of the real estate market, such as accessibility to public transport or services) or including agricultural land in the tax base, which would provide additional revenues especially to small and rural municipalities (OECD, 2019[63]; Kalcheva and Nenkova, 2019[64]).

  • Diversifying the municipal portfolio of taxes. To address the problem of low tax revenues, the tax system needs to be restructured by diversifying the local tax scope and base to increase the share of tax revenue. Adopting broad-based taxes or a wide variety of tax instruments is crucial to securing the financial stability and self-resilience of local governments. Local taxes should also serve as the link between local growth and municipal revenue, giving local government incentives to attract investment and boost local growth. Bulgaria could then consider giving municipalities the authority to raise taxes, e.g. taxes related to the provision of local public services, such as: a cleaning tax or a street lighting tax; taxes related to local vehicular traffic, such as parking taxes or taxes on ride-sharing service; license taxes related to specific local activities, such as advertising, gambling, entertainment, personal services, etc. (OECD, forthcoming[62]).

  • In addition, Bulgaria could consider providing a share of personal income tax (PIT) to municipalities or giving them the opportunity to levy a surtax on PIT. In fact, while the approach of removing PIT as shared tax in 2003 was justified as PIT is progressive and the tax base is unevenly distributed, favouring rich local governments, it might not have been the most strategic approach to completely replace PIT with transfers for delegated activities. Other more nuanced approaches to counteract the progressive effect and risk of disparity have not been explored. These include introducing redistributive factors into the central-local tax-sharing mechanism through equalisation mechanisms.

In recent years, various research studies and proposals have suggested redirecting two percentage points of PIT to municipal budgets or, in other cases, a portion of the value-added tax (VAT) (Institute for Market Economics, 2019[65]; Kalcheva and Nenkova, 2019[64]). Estimates show that the transfer of one-fifth of the PIT revenue for 2018 would increase municipalities’ own-revenues by nearly BGN 675 million (i.e. by almost one-third) and create real incentives for local authorities to work to attract investment and job creation (IME, 2018[66]). This scenario could be further explored in Bulgaria. EU and OECD country experiences show that tax sharing is widely used (Box 4.17).

  • Strengthen the Bulgarian fiscal equalisation system. Such a local tax reform, if conducted, would require a substantial strengthening of the existing “general equalisation grant” but also an investigation of other possible equalisation mechanisms, in particular horizontal equalisation measures (Nenkova, 2019[67]). The reform of the general equalisation grants formula, conducted in 2019, was the first step towards greater equity and efficiency in the system, as it better targets municipalities with low fiscal capacity (OECD, 2019[63]). However, additional adjustments are still needed according to some stakeholders. In this respect, looking at international experience would be of great interest to Bulgaria. In fact, equalisation mechanisms are widely used in both federal and unitary OECD countries. They combine vertical transfers (from the central government to financially weak subnational governments) and horizontal transfers (from wealthy jurisdictions to the poorer ones), as well as arrangements based on revenue equalisation (to reduce differences in tax-raising capacity) or charges equalisation (to reduce differences in the cost of providing public services). Vertical equalisation is more widespread than horizontal equalisation. Tax revenue equalisation and cost equalisation systems are used with roughly the same frequency.

  • Find incentives for municipalities to make the most of their taxation power. As is the case in other EU and OECD countries, local governments are not always using their taxing power to the fullest extent, either for political reasons or because of easier access to other sources of funding (e.g. disincentive effects of grants financing). To increase municipal tax efforts, the Bulgarian Ministry of Finance has recently conditioned the allocation of interest-free loans based on local commitments to raise local tax rates, a measure which has been quite successful (IME, 2018[66]). Other incentives, however, could also be implemented, and providing more discretion on the tax base could be an additional motivator for municipalities to formulate their own tax policies.

  • Improve the collection of local taxes. Increasing the tax collection rate is identified as one of the major aims of the Ministry of Finance’s Convergence Programme. Estimates show that raising the collection rate by just 10 percentage points could bring in additional BGN 140 million in local tax revenue and probably even more in non-tax revenue (e.g. local fees). At 100% collection, the local tax revenue could increase by BGN 400 million annually (Forbes Bulgaria, 2020[68]) – to compare, the total municipal own-revenue from taxes and fees in 2018 was BGN 2.4 billion. While tax collection has been decentralised, many municipalities lack the administrative capacity and tools to collect tax receipts but also to fight against tax evasion and avoidance. Tax collection and management (data collection and reporting, setting registration, evaluation and carrying out control activities) should be improved and supported by the central government to realise economies of scale and improve efficiency, especially if further decentralisation results in the transfer of additional taxes (and fees). For example, in the case of the introduction of the tax on taxi transport in 2017 as a new local revenue source, municipalities did not have appropriate tools and information to correctly make the assessment and manage its collection (SEGA, 2019[69]).

  • Some measures could be adopted such as: i) favouring inter-municipal co-operation to establish common tax offices and realise economies of scale; ii) improving co-ordination and co-operation between municipalities and the National Revenue Agency, the State Receivables Collection Agency (and their territorial directorates) and the National Customs Agency and optimising the system for central-local information management; iii) disseminating and increasing the use of a proper electronic tax tool (as an example, municipalities attributed the increase of vehicle tax collection to the switch to an automated electronic system, introduced by the Ministry of the Interior in 2018/2019 (NAMRB, 2018[59]; IME, 2013[70]); and iv) increasing the delegation of rights to local authorities concerning tax collection enforcement (2008 official assessment of the Local Taxes and Fees Act).

Investment needs remain significant in Bulgaria, especially at the local level where investment gaps result in increased territorial disparities. These investment needs are related to co-financing both EU projects and other types of investment, including new investment and maintenance and rehabilitation investment. To close the investment gap, an analysis could be conducted on how to remove impediments/obstacles to external financing in order to boost infrastructure investments while still preserving economic stability and sound fiscal management. A working group that includes central government entities (Ministry of Finance, State Treasury, Central Bank, Ministry of Regional Development, etc.), the NAMRB, commercial banks, international financial institutions and rating agencies could be established. Two issues could be discussed: debt financing and PPPs as tools for public investment and regional development.

In theory, borrowing is used to finance investment projects when self-financing and capital transfers from the central government are insufficient to meet the project needs. Acquiring public debt thus increases municipal financial capacity to invest in municipal infrastructure. The use of borrowing has other advantages including better allocation of resources over time, intertemporal and intergenerational equity and acceleration of local development projects. In Bulgaria, acquiring public debt also provides the matching funds required to co-finance EU projects. However, borrowing remains underutilised because of borrowing constraints and weak creditworthiness. As noted in Chapter 3, basic prerequisites for borrowing are not met by many Bulgarian municipalities as they are not able to generate revenue. Reinforcing borrowing begins by strengthening fiscal decentralisation, i.e. improving the capacity of municipalities to generate revenue. Beyond that, Bulgaria could reflect on how to better use debt for investment financing.

Measures which could be assessed and discussed include: reviewing prudential rules, encouraging joint borrowing, facilitating the access of large municipalities and inter-municipal co-operation bodies to capital markets (bond financing, green and social bonds), developing of a rating system to identify “capable” municipalities, enlarging the scope of the Fund for Local Authorities and Governments in Bulgaria (FLAG) to finance all municipal investment projects, developing municipal development funds (MDFs) and encouraging subnational pooled finance mechanisms (SPFMs), which are local government funding agencies, already well established in Nordic countries (Denmark, Finland, Norway, Sweden) and are now emerging in France, New Zealand and the UK (OECD, 2017[6]; Kalcheva, 2017[71]).

PPPs can complement other sources of infrastructure finance by attracting private investment to finance large-scale or complex infrastructure projects, especially in large cities. Most OECD countries (83%) reported having 0%-5% of public sector infrastructure investment taking place through PPPs in the last three years (OECD, 2018[72]; 2019[1]).

The use of PPPs is incipient in Bulgaria, except in the area of concessions for municipal property management which have existed for a while and have helped to develop a considerable body of practical knowledge. There are currently 624 municipal concessions in Bulgaria versus 102 at the state level. A PPP Act enacted in 2013 was never put into practice. The new Concessions Act, in force since 1 January 2018, repealed an existing concession act and the PPP Act. It distinguishes between three types of concessions according to their subject: public works, services and the use of public state and public municipal property. The new law provides the possibility of payments by the contracting authority or “availability payments”, setting out the general conditions regarding the identification and motivation of the need for payments. Thus, under the framework of the Concessions Act, this form of PPP (with payments from the state/municipality) can also be implemented (OECD, 2019[63]).

PPPs could be encouraged at the local level especially for large municipalities or inter-municipal co-operation bodies that have the financial and technical capacities required to design, implement, administer and monitor complex projects. The government should promote local PPPs, which could be a successful and workable mechanism to address several local issues and to stimulate economic development (UPEE, 2020[33]). Several OECD countries could provide interesting experiences such as Australia, Canada, Colombia, France, Germany, Korea, Mexico or the UK.

Although there is already a regulatory framework in Bulgaria, a legal framework targeted and adapted to local projects could be established to regulate, secure, facilitate and stimulate PPPs, especially at the metropolitan level. Bulgaria could launch a programme on subnational PPPs to build and reinforce municipal sector capacity to effectively engage with the private sector in PPPs. It could also establish a PPP unit dedicated to supporting municipalities and providing financial resources to municipalities to access technical support. In the area of social housing, legal constraints, which impose to municipalities to construct dwellings, could be reviewed to encourage the participation of private sector developers and PPPs and support the development of social housing in municipalities (OECD, 2021[55]).

Rolling out subnational PPPs should be done with caution. There have been many examples in recent years of PPP failures or misuse and they are not well-suited for all subnational governments. They work best in larger jurisdictions that already have the general fiscal and institutional capacities required. Likewise, they should be used primarily in those infrastructure sectors where the public sector has sufficient expertise (OECD, 2019[1]). Pilot projects could be undertaken and monitored and evaluated carefully prior to being scaled up.

Fiscal discipline is one of the fundamental components of good financial and municipal governance and thus of successful decentralisation. It ensures that financial resources are properly managed and spent according to municipal priorities (Koleva, 2019[73]). Rules for fiscal discipline and responsibility are desirable to minimise fiscal risks and to restrain imprudent fiscal behaviours (OECD, 2019[9]). In this respect, Bulgaria has established a sound fiscal framework, including a recovery programme for municipalities under fiscal stress that represents a positive step for consolidating local finances, as systemic information about the health of municipal finances and mechanisms for the enforcement of fiscal discipline was previously lacking. The mechanism provides for transparent and automated state monitoring of local authority finances. At the same time, this may result in increased financial and political dependence on the central government, further limiting local autonomy (Zankina and Gurov, 2018[74]). In addition, there are still significant issues regarding municipal financial sustainability, transparency and accountability, which need to be addressed more comprehensively. Fiscal discipline tools are crucial but the overall municipal fiscal framework does not accurately address the structural deficiencies of the centralised local finance system. Municipalities do not have sufficient control over their revenues and, therefore, are not fully able to analyse the effectiveness of their activities and make informed decisions about local financial management (Aleksiev, 2016[75]; Houbenova-Delisivkova, 2017[57]).

Bulgaria should put the topic of fiscal discipline at the core of the decentralisation strategy and as a fundamental component of successful fiscal decentralisation. In this perspective, to address the problem of public finance management quality and conditions, the current fiscal framework should be complemented by systematic measures aimed at enhancing local finance management. These measures could include: adjusting the budgetary and fiscal framework to modernise and make municipalities more efficient and responsible; improving greater disclosure, monitoring and transparency of municipal functioning; and reinforcing accountability to guarantee fiscal sustainability of public policies (Aleksiev, 2016[75]; Houbenova-Delisivkova, 2017[57])

An effective intermediate level between the central and municipal levels is missing in Bulgaria, whether represented by the districts or the planning regions. An effective regional level could bring a lot of value to the Bulgarian multi-level governance system to foster co-operation among municipalities, ensure better co-ordination between the municipal and central levels and to design and implement regional place-based policies, in co-ordination with the central government and EU cohesion policy. International experiences, especially in EU and OECD countries, show that regionalisation reforms have been an important trend in multi-level governance in recent decades and that different regionalisation models exist and even coexist within the same country. In Bulgaria, there are still many ongoing debates about the regionalisation process itself. Questions have been raised about how to proceed with reinforcing regional levels and about which regional levels should be reinforced – districts or planning regions, or both. Plans to reform the regional level, in particular in the context of the 2006-15 Decentralisation Strategy, have not yet been translated into significant concrete achievements. In fact, no consensus seems to have emerged at this stage on the best options for the future. In the following sections, several scenarios based on international experiences are proposed. The common theme for these scenarios is the differentiation between the role of districts and that of planning regions. The districts would become the main representative of the central government at the territorial level while the planning regions, as legal entities, would become the governance level focusing, at least in the first stage, on regional development.

Regionalisation reforms have been an important trend in multi-level governance in recent decades in Europe but also in other regions of the world, in particular American Asia and to a lesser extent Africa (OECD/UCLG, 2019[76]). Looking back over the period 1970-2010, the Regional Authority Index (RAI), which measures the degree of power of regional authorities across 10 dimensions shows that 52 out 81 observed countries have experienced a net increase in the degree of regional authority over this 40-year period (Hooghe, Marks and Schakel, 2009[77]; Hooghe et al., 2016[78]).

There are several drivers behind regionalisation, which are often found in combination: political, socio-cultural and administrative concerns; the need to carry out place-based policies for regional development; the search for economies of scale in the provision of public services and infrastructures; and the aim of enhancing competitiveness and regional growth. The size of the country also matters as large countries tend to have more layers of subnational governments. But many countries of a relatively modest size have also introduced or strengthened a regional level in recent decades.

Political reasons can be a strong motive for regionalisation, especially if regionalisation is associated with decentralisation, i.e. the recognition of a regional power besides the national power resulting from the direct election of regional bodies. This can enhance local democracy, transparency and accountability at the regional level. Political recognition may also be strongly associated, in some countries, to the preservation of historical, cultural, ethnic or linguistic characteristics at the regional level. In some countries, granting local autonomy to regional entities may also prevent the disintegration of the “nation-state” and ensure greater political stability. Another driver of regional reforms is more indirect, resulting from reforms affecting another level of government, for example, municipalities or the state territorial deconcentrated administration. For example, municipal reorganisations (consolidation through mergers or inter-municipal co-operation) may have an impact on the existing role of regions. The objective of regional reforms is then to redefine the role of the regions within the more general changing multi-level governance framework (OECD, 2017[8]).

Beyond political and socio-cultural considerations, the regionalisation phenomenon is closely related to the need to co-ordinate place-based policies adapted to the specific conditions of regions and to carry out regional development policies to reduce disparities. In several OECD countries, regionalisation is motivated by regional development and spatial planning considerations. In EU countries, and especially Central and Eastern European Countries (CEECs), regionalisation resulted, among other considerations, from the need to design and implement regional development policies and access EU funds, and therefore to set up new governance structures (Box 4.18). Relative to local governments, regions can overcome purely local interests and instead take a broader, regional view. They can prevent over-fragmentation of projects, in particular those related to EU funds, foster intra-regional co-ordination and inter-municipal co-operation, and promote rural-urban linkages. They may also have more resources available to implement effective regional development strategies and more integrated territorial planning (OECD, 2019[1]).

In this same vein, regionalisation can be a way to correct the excessive concentration of the capital city, such as in France, Japan and Korea. In France, for example, the excessive weight of the Paris region which concentrates the bulk of political and economic powers, denounced since 1947 in the book Paris and the French Desert (Gravier, 1947[79]), has had a great impact on the regionalisation process.

Achieving economies of scale in public service provision may be another strong incentive for regionalisation. A regional level can facilitate the provision of services and infrastructure of regional interest because it operates on a larger scale. Services typically provided at the regional level include: secondary and higher education; professional training; regional spatial planning; regional economic development and innovation; secondary healthcare and hospitals; social and labour market services; regional roads and public transport; regional promotion, culture and tourism; and environmental protection. These services benefit from economies of scale, generate spill-overs, involve redistribution and are required to meet the same standards across the jurisdiction (OECD, 2020[80]). For public goods with strong local/regional externalities, the regional level has more local knowledge and can better match its policies with functional areas. The added-value brought by the regional level to foster co-operation among municipalities and facilitate co-ordination between the local and national levels may also motivate the creation or reinforcement of the regional level.

Globalisation and other megatrends have reinforced the regionalisation trend. In fact, competing at the international and European level by highlighting regional assets and attractiveness may encourage the development of initiatives to enhance competitiveness and regional growth. Regions can also bring added-value to the strategic planning and regional development processes, which involve stakeholders from inside and outside the region, from the public and private spheres, and all levels of government. Regions may better target regional comparative advantages through access to local knowledge, compared to the national government or too-fragmented local governments. Through this role, regions can play a major role in increasing employment and productivity and driving economic growth at the regional and national levels. Finally, stronger regions facilitate co-operation with other regions and international and European levels and better compete on the global scene. Stronger regions can allow for more effective governance for cross-border or macro-regional projects.

The 2008 global financial crisis, and the subsequent fiscal consolidation measures, have had a strong impact on the regionalisation trend. In some cases, it has led to the creation of a decentralised regional level such as in Greece in 2011 (Kallikratis Reform) but also to the reinforcement or up-scaling of existing regions. In Finland, the objective of the planned regional reform (currently on hold) was to attain greater efficiency for public services (provided both by municipalities and central government) to bridge the EUR 3 billion sustainability gap, by upscaling and reducing costs.

The current COVID-19 crisis may also impact the regionalisation trend. The crisis shows that relying on an efficient regional level may help countries to cope with the varied impacts of the crisis and provide adequate policy responses for the economic recovery of territories. The post-COVID-19 economic recovery will require ambitious territorial approaches and governance models at the regional level. In several countries, calls are being made to strengthen the regional level and/or to make it more resilient and effective to act in times of crisis.

They are two main types of regional reforms: institutional and territorial. These are not exclusive and can be combined, which is often the case (Table 4.5).

Institutional reforms consist of creating a new regional level (elected or not) or modifying the responsibilities and resources of existing regional entities. As indicated above, motives behind the creation of new regional bodies or the redefinition of their responsibilities and resources may be political, socio-cultural and economic and, in many cases, a combination of these. Institutional reforms are often decentralisation reforms. Regionalisation and decentralisation were closely associated in several federal or unitary countries, such as Belgium, the Czech Republic, France, Greece, Italy, Poland, the Slovak Republic, Spain and the UK, that created or reinstated an elected regional level in the 1990s. Since then, regionalisation reforms have focused on delegating more powers to the existing regional level or strengthening their institutional capacity. These changes have been associated with reforms of subnational finance systems, to provide adequate fiscal capacities to bear these additional powers and responsibilities. However, in some instances, institutional reforms result in a recentralisation process.

Territorial reforms consist of modifying boundaries of existing regional entities to find the right scale for effective regional policies. Most of the time, it consists of consolidating regions through regional mergers. In many countries, the administrative boundaries of regional entities have been based on historical settlement patterns established many decades or centuries ago when the fastest means of transport was by horse and they have not been significantly revised in the interim. This is the case in countries like Austria, Japan, the Netherlands, Norway, Sweden and Switzerland, for example. These boundaries are now often outdated and do not reflect demographic changes, socio-economic relations and functional areas. This disconnect from the realities of today has motivated several regional remodellings to reach greater critical mass, such as in Norway where, since 1 January 2020, 11 larger regions have replaced the former 18 counties intending to strengthen the regions as functional units and to provide more coherent housing and labour market policies

“Pure” territorial reforms are very rare. Most often, they are carried out jointly with institutional reforms, such as in Norway where new responsibilities have been decentralised to the new larger regions (Table 4.5). By contrast, institutional reform may be conducted without modifying regional boundaries, except when they consist of creating an entirely new regional level.

Trends towards regionalisation take various forms, from deconcentrated regions to federated states, with different cases in between including co-operative regionalisation and decentralised regionalisation (see below for a typology of regional governance models in the OECD). As mentioned above, there is a general trend towards more decentralised regionalisation in Europe resulting in the creation of a level of elected administrative regions. In several countries, reforms towards the creation of self-governing regions are currently being discussed.

It is interesting to note that regionalisation can have very different implications for decentralisation: it can represent a form of decentralisation concerning central government but it can also generate centralisation at the regional level concerning local authorities; this situation is particularly common in some federal states (OECD, 2020[5]).

Within a country, there can be several forms of regionalisation depending on the problems faced by the country and its particular needs. This differentiation may also be the result of competition between different types of institutions to carry out regionalisation-specific operations (OECD, 2020[5]). In the same country, one can find decentralised regions, state deconcentrated regions, planning regions or statistical regions that do not have the same scale or governance structures. Within the same regional level in a given country it is also possible to find regions with different political, administrative or fiscal powers. Asymmetric regionalisation is on the rise, both in federal and unitary countries (Box 4.19).

Today, there are different forms of regionalisation in EU and OECD countries, ranging from soft arrangements to stronger regional governance. Each model has its own advantages and shortcomings. Additionally, several regional arrangements, for example, deconcentrated and decentralised regionalisation, may coexist within the same country, a situation which is quite widespread in the EU and OECD (OECD, 2017[8]; 2020[80]).

Four different models can be distinguished. The examples of these four models outlined below represent a snapshot taken at a moment in time as regional arrangements are not static and are constantly evolving, as underlined above. In parallel, some countries have established regional development agencies (RDAs), which offer an alternative or a complement to existing regional arrangements.

Statistical/planning regions (also sometimes called “development regions”) are a deconcentrated entity that is part of the central administration. There are two types of planning regions: statistical regions without legal personality (Type 1a) and statistical regions with a legal status (Type 1b). Both types share many similarities as regards their functions, limited autonomy and operating mode. The main difference between the two lies in the stability and accountability of the governance structure and the fact that statistical/planning regions with administrative status have greater autonomy over their expenditure.

Statistical regions without legal personality (Type 1a): They are territorial units established for statistical or planning purposes. Bulgaria falls within this group together with countries such as Lithuania and Slovenia, which also only have one level of self-government made up of municipalities.

Although statistical/planning regions have neither a legal personality nor a proper administration and budget, they may have representative bodies, such as a deliberative body (regional development councils, RDCs) and an executive body. RDCs may be comprised of representatives from local governments and social and economic partners. They are appointed not elected. In general, deliberative bodies have few powers and their main objective is to serve as a platform for discussion. They are not a permanent body but meet several times a year.

Their administrative capacities and functions remain limited and are mainly concentrated on spatial planning and regional development, identification of lagging areas and development programmes for these areas, identification of regional socio-economic development projects and distribution of some part of EU structural funds, as is the case in Lithuania. Slovenia is a unique case. While development regions have no administrative authority, co-ordination of regional development at the regional level is ensured by a network of different regional organisations, including regional councils (RCs also called councils of mayors), RDCs and RDAs. RDAs act as administrative, professional and technical agencies, supporting the work of the RCs and RDCs (Box 4.20).

Statistical regions with a legal personality (Type 1b): These regions are territorial units established for statistical or planning purposes but, unlike Type 1a regions, they have legal status. In accordance, they benefit from an administration and their own budget. They also have deliberative and executive bodies, which are more permanent than in the Type 1a model.

The main example of Type 1b regions is found in Portugal. In 2003, Portugal established the five Commissions of Coordination and Regional Development (CCDR), at NUTS 2 level (Alentejo, Algarve, Centre, Lisbon and Tagus Valley, North). CCDRs are deconcentrated services of the central administration but, within the central government, the CCDRs have administrative and financial autonomy.

The organisational structure of the CCDRs is quite complex and comprises a president of the CCDR assisted by two vice-presidents, an administrative board, a single comptroller, a supervisory commission, inter-sectoral co-ordination council and a regional council. None of these bodies are directly elected and the president of the CCDR is appointed for a three-year term by the Portuguese government from a list of three names drawn up by an independent recruitment and selection commission following a competitive application. The CCDRs carry out important missions in the areas of the environment, land and town planning, and regional strategy development and implementation, including co-ordinating the deconcentrated arms of sectoral ministries at the regional level. In particular, CCDRs play a key role in the design and delivery of regional policy. One of their biggest responsibilities is to manage the regional operational programmes of European structural and investment funds in mainland Portugal for 2014-20. Their role has been reinforced in the most recent programming period as the share of funding for regional operational programmes has increased (OECD, 2020[5]). There is currently a debate in Portugal to reinforce the role of CCDRs, by giving them more autonomy and more powers together with more accountability (Box 4.26).

Type 2 regions are based on the co-operation of municipalities belonging to the same regional area. Four countries in the OECD have such a form of regional associations of municipalities: Finland, Iceland, Ireland and Latvia (Box 4.21).

Regional associations of municipalities have legal status and their creation needs the agreement of each member municipality. Across EU and OECD countries, regional associations of municipalities have different organisational structures, responsibilities and funding systems depending on the country. In general, they include RCs that consist of members elected by municipalities of the region and have a cabinet/office to conduct their activities. The tasks of the co-operative regional governments are often limited to regional development and spatial planning, EU funds management and some other tasks with clear region-wide benefits such as environmental protection or regional roads. However, as an inter-municipal organisation, they can also carry out tasks that are delegated by their members (e.g. waste collection or management of school offices in Iceland, and support co-operation and co-ordination between municipalities). They enjoy some decision-making autonomy on matters of regional jurisdiction. They have their own budget and are funded by municipal member fees. They can also receive central government transfers and EU funding.

Co-operative regionalisation can be seen as an alternative to full regionalisation but also as an intermediate stage towards full regionalisation (OECD, 2020[5]), such as in Finland and Latvia (Box 4.21).

Type 3 regions are uncommon in the OECD, with only Chile (in a transition phase, see below) and Turkey categorised as having this form of regionalisation. In this model, regions have an executive body that is appointed by the central government and a deliberative body whose members are elected by universal suffrage.

In Turkey, for example, the deliberative body of the self-governing provincial administrations (SPAs) is the provincial council composed of members elected by direct universal suffrage for a five-year mandate. It is headed by a president, elected by and from among the members of the council. Each SPA has a provincial executive committee composed of ten members for one year. Five members are elected by the provincial council while the five others are appointed by the governor, who is appointed by and represents the central government.

In Chile, until the new Law No. 20.990 of January 2017 created fully self-governing regions, with first regional elections of governors to be held in 2021, regions were mixed entities with a regional executive (intendant), who had been appointed by the President of the Republic, and a regional council (CORE) with elected councillors but chaired by a regional governor (OECD, 2017[6]).

Elected regional government are the most widespread form of regionalisation in EU and OECD countries. This category encompasses two sub-types: decentralised regions (Type 4a) found in unitary countries; and regions with legislative powers found mainly in federal countries (Type 4b). They are as common in countries with three tiers of subnational government (France, Poland, Spain, United States, etc.) as in countries with two tiers (Australia, Canada, Czech Republic, Denmark, etc.).

Decentralised regions (Type 4a): They are found in unitary countries where strong regionalisation processes took place in the 1980s and 1990s (Table 4.5). Governance structures are based on a directly elected deliberative body (regional assembly or council) and an executive body, which can be elected by the regional council from among its members (France, Czech Republic, Denmark, New Zealand, Norway, Poland, Sweden) or which can be elected by direct universal suffrage (Croatia since 2009, Greece since 2011, Italy, Japan, Korea, Romania since 2008, the Slovak Republic). In several countries, some decentralised regions have dual status as a municipality and a regional government, carrying out both municipal and regional responsibilities, e.g. Vienna in Austria, Zagreb in Croatia, Prague in the Czech Republic, the German city-states of Berlin, Bremen and Hamburg, Oslo in Norway and Bucharest in Romania,.

Regional governments are a legal entity having their own budget, assets, administration and decision-making power. They enjoy some autonomy concerning their own functions and responsibilities. They have a “general competency” (even if their responsibilities can be strictly defined) as opposed to “special-purpose subnational governments” which have single or multiple functions (e.g. regional transport districts, water boards or sanitation districts).

Although the existence of “decentralised regions” reflects a certain level of decentralisation, not all countries have the same level of decentralisation. In several countries, decentralised regions have few powers, responsibilities and revenues for example, in Croatia, Greece, Hungary, Poland, the Slovak Republic and Turkey.

Regions with legislative powers (Type 4b): These regions are found in the nine OECD federal and quasi-federal countries but also in unitary countries that have autonomous regions, in particular Finland, Portugal and the UK. The executive and deliberative bodies are elected by direct universal suffrage and regional parliaments exercise legislative power in some areas (primary or secondary legislative powers).

In federal countries, sovereignty is shared between the federal government and the “federated states”, which have their own constitution (Canada is an exception), parliament and government (OECD, 2020[80]). The self-governing status of the states may not be altered by a unilateral decision of the federal government. Powers and responsibilities are assigned to the federal government and the state governments either by the provision of a constitution or by judicial interpretation.

As for “decentralised regions”, the scope of autonomy of regions with legislative powers differs from one country to another. For example, federal countries are very diverse in terms of political, administrative and fiscal powers attributed to regional governments.

Responsibilities of Types 4a and 4b regions

The economic and social role of regional governments, measured by spending indicators, differs a lot across EU and OECD countries (Box 4.22). These variations across countries reflect the level of decentralisation at the regional level, in particular the distribution of responsibilities across levels of government and their type. The scope of regional responsibilities also depends on the number of subnational layers, e.g. if an intermediate level exists and carries out several functions of supra-municipal levels such as in France, Germany, Poland or the United States. Table 4.6 presents a general scheme of the breakdown of responsibilities across the subnational government levels (municipal, intermediate and regional) in countries with three subnational government levels. The scope of regional responsibilities also depends on the existence of a state deconcentrated level at the regional level, as state entities can perform some “territorial” functions.

Decentralised regions tend to have “specialised responsibilities” while the general clause of competency, or “subsidiarity principle”, applies more to the municipal level. Generally, regional governments are responsible for providing services of regional interest, which can benefit from economies of scale, generate spill-overs, involve redistribution and are required to meet the same standards across the jurisdiction (Kitchen and Slack, 2006[91]; OECD, 2017[6]; 2020[80]). Typical examples include secondary/higher education and professional training, spatial planning, economic development, secondary care and hospitals, social services, employment services, regional roads and public transports, promotion of the region, culture and tourism, and environmental protection. In some countries, regional responsibilities are very focused on one or two areas, for example, health in Denmark and Sweden.

Regional governments also play a role in strategic planning and regional development (including EU funds management in EU countries), which involves stakeholders from within and outside the region, from the public and private spheres, and all levels of government.

Responsibility for regional development and EU management funds are not always the responsibility of decentralised regions. In some cases, these tasks are entrusted to other types of regional bodies, such as RDAs. A detailed description of regional responsibilities in decentralised countries is given in Annex A.

In many cases, truly exclusive competencies rarely exist; regional responsibilities are often shared with another institutional government level, be it central or local. Some tasks can also be delegated by the central government to the regions. With municipalities, sharing responsibilities is common around issues of transport and infrastructure, environment and water, culture and tourism, communication or economic development. Responsibilities shared with the central government are mostly found in the areas of education, economic affairs and transportation, public order, health, social protection, spatial planning and land use (Allain-Dupré, 2018[92]; OECD, 2020[80]; 2019[9]).

Responsibilities of regions with legislative powers are quite extensive. In most federal countries, federal governments have exclusive and listed responsibilities (e.g. foreign policy, defence, money, judiciary system, etc.) while federated states have extensive competencies in many key areas including education, social protection, economic development, transport, environment, housing, public order (regional police), civil protection, regional development including the management of EU funds (in EU countries), etc. In all OECD federal countries except Spain (a quasi-federal country), local governments are governed by the states and not by the federal government. Local governments are considered “creations” of the federated states falling directly under their jurisdiction. In Spain however, this responsibility is shared between autonomous communities and the central government. Local government functions and finances are decided within the framework of the national law (Article 148 of the Spanish constitution) (OECD, 2020[80]). In federal countries, there are also shared responsibilities (“concurrent powers” or “joint responsibilities”), either under constitutional or legislative mandate or simply in practice (Table 4.6). In particular, public investment is a shared responsibility across levels of government and specifically with regional governments, as acknowledged by the OECD Council Recommendation on Effective Public Investment Across Levels of Government (OECD, 2019[43]).

As indicated above, the extent of regional autonomy can also be diverse among federal countries. For example, there are some discrepancies among federal countries concerning the scope of responsibilities of state governments. In Austria, for example, according to the constitution, large exclusive competencies are assigned to the federal government (public security, taxes, civil and penal law, industrial affairs, education, and healthcare) and the residual ones are assigned to the Länder, although Austrian Länder have the constitutionally guaranteed right to execute some federal laws in the areas of education, hospitals, social welfare, housing and urban development (OECD, 2020[80]).

In unitary countries made up of regions with legislative powers, powers and responsibilities are very different from one country to another and even within the same country. Finland, Portugal and the UK are examples of asymmetric regionalisation. In Portugal, the Autonomous Regions of Azores and Madeira – also recognised as the outermost regions at the EU level – have a special status and legislative power. Their legislative assembly is composed of members elected by direct universal suffrage while the President of the Regional Government is appointed by the Representative of the Republic according to the results of the election to the legislative assembly. They benefit from extensive legislative powers and define their own policies, except in the areas of foreign policy, defence and internal security (EU Committee of the Regions, 2020[93]). In Finland, the self-governing region of Åland has a parliament elected every four years that appoints the regional Åland Government. Parliament passes laws in areas relating to the internal affairs of the region and exercises its own budgetary power (Ministry of Foreign Affairs of Finland, 2020[94]). In the UK, administrative devolution took place in 1999, when Northern Ireland, Scotland and Wales had their own elected assembly and government. The powers and responsibilities of the three devolved bodies vary in nature and scope, as each devolution act was negotiated independently. The devolved institutions in Scotland and Wales have subsequently evolved and taken on greater powers, whereas the process has been more precarious in Northern Ireland, with devolution suspended several times over the 20th century.

Financing of Types 4a and 4b regions

Given their responsibilities, elected regions are in general key economic and social actors. This is reflected by their fiscal weight. According to the new OECD Regional Government Finance and Investment (REGOFI) database (OECD, 2020[80]), regional governments play a significant role in public expenditure, accounting for 7.6% of GDP and nearly 19% of public expenditure in 2016 (based on a sample of 24 countries, including 9 federal countries). Regional governments accounted for 41% of total subnational government expenditure, i.e. including, in addition to regional governments, intermediate and municipal governments. On the revenue side, regional governments represented 7.6% of GDP and 19.3% of public revenue.

The fiscal weight of regional governments in EU and OECD countries, however, varies greatly between federal and unitary countries. The financial weight of state governments is generally higher than that of decentralised regions, although there is plenty of variation in this regard within both unitary and federal countries (Box 4.22).

Decentralised regions have access to various sources, including grants and subsidies from the central government (and the EU for EU countries), tax revenues, user charges and fees for services rendered and revenues from physical and financial assets. However, there is no one dominant model of financing. There are countries where regions are funded mainly through grants and others where they are mainly funded by taxes (shared or own-source taxation). As is the case among unitary countries, there is no one dominant regional funding model among federal countries.

Box 4.23 shows how Type 4a and 4ab regions are funded in EU and OECD countries. In particular, decentralised regions can raise taxes which is not the case for other regional governance models. For example, in France, Japan, Poland and Sweden, tax revenues are an important source of revenue for regional governments. Among countries with tax resources, regional governments can receive either shared taxes (e.g. PIT in Croatia, the Czech Republic, Japan, Norway, Poland and Sweden; corporate income tax in the Czech Republic and Poland; VAT in the Czech Republic and France), own-source taxes or a mix of both shared and own-source taxes. Own-source taxes are diverse, including property transfer taxes, inheritance taxes, betting and lottery taxes, motorised vehicles taxes, sales taxes, consumption taxes, taxes on natural resources, excise taxes (alcohol, motor fuel and tobacco), taxes on economic activities and taxes on financial and capital transactions. Recurrent taxes on immovable properties are usually a local tax rather than a regional tax, and represent a small share of regional government tax revenue, except in Australia and New Zealand, where land and real estate property taxes are collected at the regional level.

In some federal countries, regions are mainly funded by grants (Austria, Mexico) while in others, they are mainly funded by taxes, shared (Canada, Germany) or own-source (Australia, Switzerland, US).

Country examples are just snapshots of a regional governance model for a given moment in time. In fact, regional governance arrangements are not static and are constantly evolving. The most frequent situation is going from soft arrangements to stronger regional governance, which can be done gradually. France is a good example of this step-by-step approach (Box 4.25) but it is not an isolated example. Other countries have experienced the same process such as Chile, Greece, Italy, the Netherlands or Turkey (Table 4.5).

Other countries, specifically Finland, Latvia, Lithuania and Portugal, are currently discussing moving from one model to another to reinforce regional governance. Romania has been discussing a new regional governance model since the end of the 1990s based on different scenarios (Box 4.26).

It is important, however, to avoid having a vision of institutional evolutionism. The different models of regionalisation should not be considered as the rungs of a virtuous ladder that states need to climb to reach the ideal model of regionalisation, i.e. the greatest regional autonomy. Obviously, situations can change and depending on the reforms implemented a state can feature different types of regionalisation, going in different and sometimes opposite directions, regarding the level of regional autonomy (OECD, 2020[5]).

In fact, while the regional government level has been gaining in importance recently, there are some cases of countries that went in the opposite direction, from a quite strong form of regional governance to a softer one, resulting from recentralisation processes (Table 4.5). This has been the case for example in Denmark, in 2007, with a reduction in the responsibilities assigned to counties whose numbers were reduced from 14 to 5 regions. A further reduction of Danish regions role has been discussed, although the proposal to abolish the current five regions in the context of the healthcare reform was abandoned with the change of government in June 2019. In Hungary, the 2012 constitutional reform and the Cardinal Law on Local Governments have profoundly transformed the subnational government framework, reducing its scope, functions and financing resources. Counties lost several major competencies (healthcare, social initiatives and secondary education) to be left mainly in charge of regional and territorial development, which makes them key region development policy actors. In Estonia, the state regional government level (counties) was abolished in January 2018 and county tasks have since been given to municipalities (consolidated) and central government agencies. In other countries, regionalisation reforms are still being debated, sometimes for many years and in an intermittent fashion, but with no concrete results thus far (e.g. Japan).

Finally, several regionalisation projects have been abandoned or postponed such as in the Netherlands in 2014 (merger of provinces), in Sweden in 2017 (merger of counties) or Finland in 2019 (creation of elected regions). Some others have been rejected by the population following a referendum such as in Portugal in 1998, in England in 2004 and Slovenia in 2008. In 2006, in Italy, a national referendum rejected a constitutional reform that aimed at further strengthening the regions to transform Italy into a quasi-federal country. Ten years after, in the same country, a new referendum rejected another constitutional reform which intended to clarify the allocation of responsibilities between the central government and ordinary regions.

There is a growing consensus in Bulgaria on the need to have more place-based policies and place-based governance tools. However, reinforcing existing regional bodies has been discussed for many years, without real progress. The topic of regionalisation is sometimes referred to as the “saga of decentralisation at the regional level” (Djildjov, 2006[103]). As already underlined in 1997, and still valid today, in spite of many commitments in favour of the creation of a regional level of governance, “there seems to be no definitive and clear concept of the size, nature, structure and functions of this regional tier” (CLRA, 1997[104]).

A historical perspective shows that Bulgaria has a long-standing tradition of regional government (Kalfova, 2019[105]). Elected regions were established by the first democratic constitution (Tarnovo) and have existed for many years. These regions were abolished following the Second World War, however, since the drafting of the 1991 Constitution, the issue of regionalisation has remained under discussion but has never come to fruition, despite intermittent pressure from international organisations such as the Council of Europe during Bulgaria’s entrance into the EU (Box 4.27).

The 2006-15 Decentralisation Strategy and the 2006-09 Programme for the Implementation of the Strategy adopted by the CoM, included a range of measures to reinforce the district level but also to prepare for the establishment of the second level of regional self-government. Preparatory work started on different options for regionalisation (political organisation, responsibilities and resources). It resulted, most notably, in a report presenting “EU member states' practices with two levels of functioning local government” (Council of Ministers of Bulgaria, 2007[106]). Three options for regionalisation were proposed: maintaining the existing 28 districts, creating 12-13 districts or creating 6 districts. Later, in 2009, a twinning project between Bulgaria and France looking both at decentralisation and deconcentration concluded that there was a need to reinforce the district and the regional governor as a state representative at the territorial level, based on the model of the French prefect (Twining project BG 2006 et al., 2009[107]). In 2011, the Congress of Local and Regional Authorities of the Council of Europe presented three “alternatives for the development of regionalisation in Bulgaria” (CLRA, 2011[108]). But no progress has been made in this direction. Linking regional policy and regional governance has yet to take place (Kalfova, 2019[105]).

In the new 2016-25 Decentralisation Strategy, increasing the role of regional institutions for the implementation of co-ordinated regional development policy is still on the table, as one of the four main strategic objectives of the strategy.

Several reasons – political, economic and social – explain the resistance to reinforced regionalisation in Bulgaria, both at the national and local levels. In addition to the fear that such reinforcement can arise (for example among municipalities and central government civil servants), there is a lack of civil society support or at least an indifference. Finally, to make this happen in a de facto manner, regional bodies need to be equipped with sufficient resources and capacities which raises additional challenges, especially in the context of scare resources. Some stakeholders fear the introduction of a new level of politicians and administration and express concerns about increased costs resulting from this bureaucracy as well as potentially additional taxes in the future.

Overall, there are still a lot of discussions that need to be had about the relevant level for regional development (districts versus planning regions), the number of regions, their structure and their responsibilities.

There are currently several discussions going on about the right regional level for Bulgaria. According to the constitution, there is only one regional level, that of districts. But, to implement policies funded by EU cohesion funds, another regional level has been created by the Regional Development Law, that of the six planning regions at NUTS 2 level. Several questions arise based on this, namely which regional level should be chosen in the future for regional development? The level of 28 districts or that of the 6 NUTS 2 regions?

Advocates of the district level argue that the district is the only one that is recognised by the constitution, which, in addition, defines regional development as one of its main tasks. Proponents of districts also argue that the planning regions are newly developed, relatively unknown to the general public and lacking in a concrete structure, as they do not have their own administrations or budgets.

Advocates of the planning regions consider that only NUTS 2 are the basic regions for the application of regional policies according to the EU nomenclature. Only NUTS 2 regions are large enough to meet the conditions of regional significance, homogeneity and identity (Stoychev, 2018[109]). Looking at other EU countries, it appears that NUTS 3 are rarely in charge of regional development policies, even when they are decentralised regions. This responsibility is either carried out by the central government or delegated at a higher regional level corresponding to NUTS 2 but without self-governing status. This is the case in Croatia, the Czech Republic, Hungary, Romania and the Slovak Republic for example.

In the following parts, it is proposed to keep both existing levels but with clearer, more focused and differentiated responsibilities and functions: districts would focus only on their missions as representative of the central government at a territorial level (deconcentrated administration) while planning regions would be promoted as the leaders for regional development.

Long before the current NUTS regionalisation of Bulgaria was carried out, several prominent scientists worked on defining regions in Bulgaria based on different criteria and approaches. A significant number of regionalisation schemes were then proposed, such as five “landscape areas” in 1934, seven “economic areas” also in 1934, three major economic-geographic areas and nine sub-regions in 1952, five economic areas in 1954, seven economical regions in 1983, and more (Stoychev, 2018[109]). In 1987, 9 regions were defined as administrative units, resulting from the merger of 28 districts but, in 1999, they were abolished and the 28 districts were restored.

The division into six regions was adopted by the decision of the CoM for the purposes of the National Plan for Regional Development 2000-06 as part of the pre-EU membership process. Therefore, they met the requirements and conditions related to the accession of Bulgaria to the EU in the field of regional policy, in particular, the requirements of the Nomenclature of Territorial Units defined by Eurostat (EC, 2018[110]). In 2010, the division was slightly revised because of negative demographic trends, which had led to 2 regions being below the minimum threshold of 800 000 inhabitants set by Article 3 of the Regulation (Southwest and Northwest).1 To solve this issue, Stara Zagora region “migrated” to South East Bulgaria and the regions of Lovech and Pleven “migrated” to the North West (Stoychev, 2018[109]). This issue however rapidly re-emerged as the population continues to decline. Between 2013 and 2018, several studies were carried out to suggest a new regional map, as the North Central and North West regions no longer met the relevant technical requirements.

One scenario, set out in the draft Law on Regional Development in October 2018, was to reduce the number of planning regions from six to four. It was abandoned in the end (Box 4.28).

Looking at the current demographic and geographic size of elected regions in EU and OECD countries compared to the size of Bulgarian planning regions, the reality is that there is no clear norm or ideal size for regional governments in terms of area or population. The demographic and geographic sizes of regional governments are very heterogeneous across and within countries, be they federal or unitary (Figure 4.11). In 13 countries, regional government boundaries corresponded to NUTS 2 and in 10 other countries, they corresponded to NUTS 3. It is important to note that, behind these regional averages, discrepancies between regions within countries may be large.

Responsibilities related to regional development should be the foundation of the new planning regions, whatever their type. Place-based regional policy should go hand in hand with place-based governance, relying on local and regional governments. While municipalities should have a key role in local development, regions should be responsible for regional development. It does not mean however that central governments do not play a role as central governments are also important actors in developing place-based regional policy.

In fact, regional development policies are often a shared responsibility among national, regional and local actors in many EU and OECD countries. Because regional and local actors may have various resources, agendas, and legal or political standing, the role of the central government is increasingly important for providing an overarching framework and guidelines for regional development policies, ensuring dialogue and co-ordination and fostering equity and solidarity across territories (OECD, 2010[81]; 2019[9]). In particular, central governments play a key role in ensuring the balanced development of all parts of the national territory and minimising the potential risk of increased disparities, thanks to well-designed equalisation policies.

For Bulgaria, the new governance model for regional development does not mean transferring regional development from the central government to planning regions but establishing a new paradigm based on multi-level governance and vertical co-ordination mechanisms that foster a partnership-based relationship among levels of government (OECD, 2019[9]).

This principle should also be translated into the management of EU funds. The EU has promoted multi-level governance for its Cohesion Policy though the “partnership principle”. This principle requires the involvement of new partners in programme formulation and implementation and was codified in 1988 (involvement of regional and local authorities), 1993 (economic and social partners), 1999 (organisations responsible for the environment and gender equality) and 2006 (NGOs and civil society bodies) (Nyikos and Talaga, 2014[114]). In May 2018, the European Commission (EC) published its proposals for regulations for the next period from 2021 to 2027, stating that “Local, urban and regional authorities will be more involved in the management of EU funds, while the increase of co-financing rates will improve ownership of EU-funded projects in cities and regions” (EC, 2018[115]).

Despite these guidelines, the way EU funds are managed for regional development varies widely between EU countries. In some EU countries, EU funds for regional development are managed centrally particularly in several Central and Eastern European countries, including Bulgaria. National governments continue “to exert a strong grip on key decisions and there is resistance to EU pressures for subnational empowerment and inclusive, horizontal partnership-working where this has gone against domestic preferences or pre-existing traditions (Nyikos and Talaga, 2014[114]). In other countries, large parts of EU funds are fully managed by the self-governing regions, such as in Germany or Spain. Finally, in another group of EU countries, responsibility is shared between the central and regional government, accruing to a great variety of sharing models: by funds, operational programmes, objectives and axis; or by functions: preparation of regional strategies, programme planning, project generation and selection, management and disbursement related to project implementation, control and monitoring, evaluation and assessment.

In reality, the institutional architecture for the management of European funds varies a lot according to countries, in particular depending on the national institutional setting and the allocation of responsibilities across levels of government. Four main models of governance of EU funds can be distinguished (Box 4.29).

The Regional Development Act has been amended in March 2020 to establish, among others, a new governance system for the next programming period.

The RDCs will be responsible for the pre-selection of projects in compliance with the integrated territorial strategy of the corresponding region. This will be a completely new role for them and it is expected that they will face the same or even heavier challenges than the current IBs. A new organisation of RDCs will be established. This is a step in the right direction but additional functions related to regional development and management of EU funds could be progressively delegated to planning regions in the future, especially if their governance structure is reinforced together with their fiscal, technical and human capacities.

The option which is proposed is not to choose between one level over the other, but to reform both levels with much clearer and more focused and differentiated functions. Districts should be maintained and reinforced as state territorial administration (deconcentrated central government) but with no further responsibility for regional development. Planning regions should be promoted as a legal body in charge of regional development as their basic function and they should be adequately resourced to do so.

Districts should be reformed and strengthened to accompany the decentralisation process, adapted to the increasing role of planning regions and enhanced in their co-ordination and control functions as state deconcentrated administration at territorial level, similar to the French model of prefectural administration (Twining project BG 2006 et al., 2009[107]). A review could also be conducted about future opportunities to modify district boundaries to maintain administrative and territorial alignment.

The role of the districts should be reinforced so that they can more effectively take on different roles:

  • Vertical co-ordination between the central government and municipal levels: Managing relations between different levels of government is a necessity in a decentralised context. The district level seems to be in the best position to manage this vertical relationship, with its constitutional status and historical traditions. Districts should play a proactive role in co-ordinating national and local policies, with a shift from a traditional top-down transmission organ to a “mediator” role able to reconcile different perspectives (Boulineau, 2005[118]).

  • Horizontal co-ordination of central government activities at the territorial level: Districts should become the scale of co-ordination of central government administration. In France, for example, according to the constitution, the prefect is the direct representative of the prime minister and every ministry at the departmental level in implementing government policies and their planning. The prefect is responsible for national interests, administrative supervision and compliance with laws and is in charge of public order.

  • In the short and medium terms, it is also important for the line ministries and central agencies to gradually rationalise and streamline the existing territorial directorates – not only in terms of consolidating their numbers but also in clarifying what functions and responsibilities should be deconcentrated to territorial units in order to improve the efficiency of work. This process can help pave the way for districts to better carry out co-ordination at the territorial level and they should actively participate in this consolidation process.

  • Horizontal co-operation between municipalities: Districts could play a more proactive role in supporting critical projects that require cross-jurisdictional co-operation and local development. They could act as integrators, in particular assisting with consolidating the work in weaker and rural municipalities. They could be instrumental in fostering and supporting inter-municipal co-operation. Districts have a key role to play in encouraging municipalities to work together on large-scale projects (Stoilova, 2007[119]).

  • Administrative and budgetary control of municipal activities: Districts could reinforce their legal control. Similar to what happens in France, they could also receive new tasks related to the monitoring of municipal activities, such as a posteriori budgetary and financial control of municipalities, in liaison with the Ministry of Finance. The objective would be to reinforce their means to combat and curtail corruption more effectively.

Today, districts’ responsibility in the area of regional development is enshrined in the constitution (Article 142). To avoid a constitutional revision, districts could keep a role in this area by highlighting their involvement in support of local development and territorial co-operation with other districts inside or outside Bulgaria, including cross-border co-operation.

The human, technical and financial capacity of the districts should be significantly reinforced as today they do not have sufficient means to carry out their tasks. Fragmented territorial units of the central administration could be rationalised and consolidated at the district level for cost savings but also to better implement public policies and provide quality services to citizens and businesses (Government of Bulgaria, 2014[30]). In that process, some transfers of staff and budget from territorial units of the central government could be envisaged, in line with district responsibilities. The status and powers of District Development Councils (DDCs) should be revised to take into account the fact that they will no longer be in charge of regional development. DDCs were created by the Regional Development Act to carry out regional development but they could be abolished or transformed into a consultative body. In that case, it would be necessary to review their composition and functioning. They could comprise more representatives of the civil society and be consulted on the modernisation of public services delivered by the central government at the territorial level.

The precise scope of district responsibilities would depend on their future territorial organisation. There are 2 scenarios: keeping the 28 districts or merging the 28 districts into 6-state regional administrations. Both options are viable. In the first scenario, keeping the current territorial boundaries makes co-operation and control of municipalities easier as it guarantees some proximity. In the second scenario, adopting the same boundaries of planning regions also facilitates co-operation with regional entities while limiting the costs of deconcentrated administration.

International experience shows that there is no one correct model. In Greece, there are 7 territorial state administrations and 13 decentralised regions, established in 2011. In Norway, following the recent merger of regional governments, it has been decided to also merge the state territorial administration with the same regional boundaries. In Romania, the state deconcentrated administration is established at the scale of the 41 prefectures. In France, it has been decided to keep a deconcentrated administration at regional and departmental levels. Since 2016, the network of prefectures has been engaged, on an unprecedented scale, in the development of “a new generation of prefectures” plan. The network of regional prefectures has also been modified following regional mergers decided by the 2014 law on the delimitation of the regions, reducing the number of regions from 26 to 17 in mainland France and overseas (Box 4.31).

Bulgaria needs to adapt its regional governance to its new place-based regional development policy. The weaknesses of the current planning regions prevent them from actively contributing to regional development, despite it being their main task on paper. Planning regions should be endowed with wider responsibilities to formulate, adopt, implement and monitor strategic planning documents but also to select, finance and implement projects of regional and inter-regional importance, including those funded by EU funds.

The key issue is to transform the current planning regions from statistical units to structured and acting bodies with the full capacity for implementing regional development policy. For this purpose, the existing planning regions and RDCs should be reinforced regarding their status, legitimacy, powers, responsibilities, organisation and capacities, both human and financial, to allow them to effectively support regional development policy design and implementation.

The current discussions around regionalisation, described above, show that the creation of a new layer of government could be too radical, bringing the risk of rejection of the whole process of regionalisation. Instead of a “big bang” reform, Bulgaria could adopt an incremental approach by gradually strengthening existing regional bodies. The first objective of the approach would be to demonstrate the appropriateness and added-value of a true regional orientation compared to the addition of local orientations. Then, by providing planning regions with a legal personality, clear responsibilities and functions and adequate resources (human, fiscal and technical), the process would allow for improved regional decision-making, enhanced skills for regional development and a higher quality of projects and planning.

The current reform of the Regional Development Act is a step in this direction, by clarifying and strengthening the role of RDCs and improving their organisation. However, it does not go far enough to provide planning regions with a real capacity to act as it is not foreseen to provide the planning regions with a legal personality, administration and/or budget. Therefore, the regional governance model which is currently retained for the next programming period 2021-27 would remain a Type 1a model. Other scenarios of regional governance are proposed below for discussion as alternatives to the Type 1a model. The upcoming 2021-27 programming period could then be used to discuss and perhaps implement more integrated forms of regional governance.

The foundation of all scenarios: Providing a legal personality to planning regions

The first step would be to provide a legal personality to planning regions, that of a public body, with its own budget and administration. Because of the complexity of the current situation, it is recommended to keep the same number of regions but to provide them with names that “make sense” to the general population in terms of identity, which can be a challenging task. The names and territorial scope of the regions are vital because they provide regional identification within the national space (Stoychev, 2018[109]) Consultations with the population could be organised to carry out this change.

In terms of governance, the system of “rotating” district governors should be abolished and replaced with a permanent executive organ. The status of this executive body would depend on the chosen model of regional governance. In fact, governors could be either appointed for a given period by the central government (e.g. a duration corresponding to the municipal mandate) or elected (directly or indirectly). The planning regions will continue to have RDCs whose composition, functions and role would also depend on the selected model. But in any case, RDCs should ensure more representation of local actors and involve more civil society representatives.

In all cases, planning regions, as legal entities, would have their own assets, administration and budget. A challenging issue will be to choose a capital for the region where regional headquarters will be situated.

In terms of functions, regardless the chosen scenarios, planning regions’ responsibilities should be expanded in the areas of spatial planning, regional development and management of EU funds to also include selection, funding, implementation and monitoring of projects. Adequate financial resources, skilled staff and modern tools (e.g. an efficient IT system, performance indicators) should be made available to planning regions so that that can effectively perform these tasks, in particular, those concerning implementation, monitoring and evaluation.

Four regional governance models have been presented above, as well as the solution of RDAs. Two models could be implemented in the short or medium term (Type 1a and 2) in Bulgaria. Type 3 (mixed/hybrid regions) is not recommended for various reasons. The Type 4a model (decentralised regions) seems premature but could be implemented in the longer term. The Type 4b model is not suitable for Bulgaria, as it mainly concerns federal countries or unitary countries with strong asymmetric features.

Towards statistical/planning regions with an administrative status (Type 1b)?

Apart from keeping the Type 1a model (status quo including improvements included in the last Regional Development Act), moving towards planning regions with administrative status is the simplest and fastest scenario as it consists of providing legal status to the current governing structure and involves providing the regions with their own budget and administration. The governance structure would remain roughly the same, however, with several improvements:

  • It would be necessary to replace the system of rotating governors by a permanent executive body (president). Planning regions would have wider responsibilities in the area of spatial planning, regional development and management of EU funds, to include selection, funding, implementation and monitoring capabilities. Their budget would be delegated by the central government.

  • The composition of RDCs would be modified to reduce the domination of central government representatives and enlarge the representation of municipalities. Representatives of civil society would participate in RDCs as permanent members to support the partnership principle.

  • Encouraging peer learning, providing clear guidelines, developing information flows and knowledge exchange will be fundamental to building the capacity of the RDCs to be successful in their new functions (regional development, planning, project selection for the future PDR 2021-27 as well as other OPs, monitoring, etc.). Establishing a working group or network of RDCs where they can easily share experiences and learn from one another, as well as build peer networks would be valuable for ensuring further capacity is built to support effective regional OP management and implementation. The working group could also serve as a regional-level co-ordination mechanism for RDCs to discuss common needs and opportunities for inter-regional co-operation and to find solutions for common challenges (OECD, 2019[121]).

  • The creation of expert committees would be mandatory in some areas, in particular, for regional development.

  • Planning regions would have their permanent administration. Current MRDPW deconcentrated offices could become permanent staff for the new planning regions. Districts could also transfer some of their staff previously working on regional development. Depending on the scope of new functions carried out by the planning regions, other staff transfers could be envisaged as well as new recruitments. Significant training programmes should be established to enhance competencies and skills.

Towards regional association of municipalities (Type 2)?

This scenario is more ambitious and difficult to implement. However, as underlined above, it has proven to be valuable in several OECD countries as it allows for a “partial democratisation” of the system of governance through the direct involvement of municipalities in the governance structure, which could then be more supportive to this type of regionalisation. This scenario has several variations depending on the way representatives of municipalities are nominated for the RDCs, either through elections or appointments.

This model allows having a legal status, with a proper administration and budget and the possibility to design and finance regional projects. All improvements described above should be also implemented (permanent executive body and staff, expert committees). In addition, the budget would be diversified as it would receive contributions from municipalities, in addition to central government subsidies and EU funds. Municipal financing shares should be high enough to create incentives for municipalities to avoid the so-called common pool problem (OECD, 2020[5]). The municipal staff could be also delegated to planning regions, on a temporary (specific projects) or a more permanent basis. In terms of responsibilities, planning regions would mainly focus on regional planning and EU funds management but they could also be an efficient tool to support co-operation and co-ordination between municipalities, in particular for inter-municipal investment projects. They could also carry out other tasks, delegated to them by their members, in areas with clear regionwide benefits such as environmental protection and regional road construction/maintenance.

Towards mixed or hybrid regions (Type 3)?

As noted above, this model of regional governance is not very widespread in OECD countries. It was proposed in Bulgaria in 1995 but was finally abandoned. This model has more cons than pros. Among the pros are the fact that it reflects a move towards decentralisation, i.e. towards more local democracy and accountability, through the existence of elected councils. The cons are the complexity of relationships between elected and appointed bodies and decentralised and deconcentrated structures within the same entity. In Chile, for example, the “mixed” regional administrative structure generates some opacity on the level of responsibility and accountability. First, the Intendente as the executive head of the region and president of the RC should act in the best interest of the region’s development. However, as a representative of the central government in the region, the Intendente is also called upon to represent and implement national-level policies and guidelines, which may not always align with regional priorities. Second, the deconcentrated services of line ministries are also in an awkward position: they answer directly to their ministry because they are regional representatives of sectoral priorities and policies, yet they also serve the Intendente and work to implement sector initiatives at the regional level in line with the Intendente’s priorities. Finally, the institutional role and administrative functions of provincial governors (head of regional council) are unclear, as is their degree of influence in implementing national or regional policy within their territories (OECD, 2013[122]). In the end, Chile decided to move away from this complex regional governance model towards fully decentralised regions. The first regional elections of governors are to take place in 2021 (OECD, 2017[6]).

Towards decentralised regions (Type 4a)?

This model of regional governance seems premature, according to discussions and meetings held throughout the course of this study. It seems that there is still some opposition from different groups at both the national and local levels. This model is also perhaps more difficult to implement on a constitutional level, although the constitution stipulates that in addition to the municipal and regional (district) tiers of territorial administration, “other administrative territorial units and bodies of self-government shall be established by law”.

This model has, however, some supporters, for example, the Union for Economic Private Enterprise that notices that “regional governance is still simply a form of territorial organisation of central government” (UPEE, 2020[33]). This option is clearly stated in the 2016-25 Decentralisation Strategy in Priority 3 of Strategic Objective 4: “Research the possibilities for creating a second level of local self-government”.

This model of decentralised regions potentially has large benefits for Bulgaria, notably in terms of local democracy and accountability (direct elections and check-and-balance system) and effectiveness.

In fact, in this scenario, regions could have access to more diversified funding sources (central government and EU funding, subsidies, user charges and fees, income from assets) and access to external financing (for the most integrated regional governments), as described in Table 4.8.

In terms of responsibilities, decentralised regions would have more authority in the area of regional development – although this is not a general rule – but also in other sectors. Generally, regional governments are responsible for providing services of regional interest, which can benefit from economies of scale, generate spill-overs, involve redistribution and are required to meet the same standards across the jurisdiction (see Type 4a: Decentralised regions and detailed description of regional responsibilities in Annex A).

It is recommended to further explore the possibility of implementing the Type 1a (planning regions with an administrative status) or Type 2 model (regional association of municipalities) in Bulgaria. If moving towards an effective decentralised regional governance model remains a desirable scenario in the longer term, as stated in the 2016-25 Decentralisation Strategy, it would be preferable to transform planning regions into “co-operative regions” that could serve as a capacity-building exercise and prepare the ground for decentralised regions in the future.


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[100] Veiga, L. and C. Pedro (2019), “Portuguese multi-level governance studies”, Unpublished manuscript.

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← 1. The Nomenclature of Territorial Units for Statistics (NUTS) is a geocode standard for referencing the subdivisions of countries for statistical purposes. For each EU member country, a hierarchy of three NUTS levels is established by Eurostat and is instrumental in the EU Structural Fund delivery mechanism. Though the NUTS regions are based on existing national administrative subdivisions, the subdivisions in some levels do not necessarily correspond to administrative divisions within the country. Depending on their size, some countries do not have all three levels. The following thresholds are used as guidelines for establishing the regions but they are not applied rigidly: NUTS 1 region (3 million to 7 million inhabitants); NUTS 2 region (800 000 to 3 million inhabitants); and NUTS 3 region (150 000 to 800 000 inhabitants) (OECD, 2010[81]).

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