OECD Working Papers on Fiscal Federalism

This series covers issues related to intergovernmental fiscal relations and local/regional public finance, such as: tax and spending assignment across government levels; intergovernmental grants; fiscal equalization; local and regional public service efficiency; inter-jurisdictional tax competition; and macroeconomic issues such as intergovernmental fiscal management and sub-central fiscal rules. Many of these working papers are outputs of the OECD Network on Fiscal Relations Across Levels of Government. Related working papers on fiscal federalism issues are also published in other OECD working paper series on tax policy, economics, public governance and regional development. An integrated list of key papers produced by the Fiscal Network can be found at http://oe.cd/fiscalnetwork.

(Note: numbers 1, 6 and 8 are available in the OECD Economics Department Working Papers, as numbers 465, 626 and 705.)


Explaining the Sub-National Tax-Grants Balance in OECD Countries

Normative principles provide a relatively clear set of rules for the balance between grants and taxes (box 1 reviews the normative theory), but in practice a variety of types of tax-grant systems are observed in OECD countries, which do not all follow these rules. According to the theory, own-taxes should be the primary revenue source (technically for the last dollar of spending), while transfers should only be used as a supplementary revenue source to correct for externalities, act as an insurance buffer, or redistribute resources between regions (see OECD 2006a, 2006b). Besides, the theory wants tax bases for sub-national governments to be confined to immobile resources such as land and user fees. In practice, transfers often represent a large proportion of sub-national governments’ revenues, and many countries use income taxes instead of property taxes at the sub-national level.


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