Reforming Fiscal Federalism and Local Government

Beyond the Zero-Sum Game

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This book describes and examines reforms of fiscal federalism and local government in 10 OECD countries implemented over the past decade. The country chapters identify common patterns and factors that are conducive to reforms of the intergovernmental fiscal framework, using a common methodological approach. The summary chapter highlights the cross-cutting issues emerging from the country chapters and shows the key factors in the institutional, political, economic and fiscal areas that are supporting reform success. The report’s approach results in valuable insights for policy makers designing, adopting and implementing fiscal federalism and local government reforms.



Reforming fiscal relations: Going beyond the zero-sum game

One of the salient features of fiscal federalism in OECD countries during the past decade has been a trend toward decentralisation, as policy reforms have increased the power of state and local governments. From 1995 to 2008 the average share of sub-central in general government spending rose from less than 31% to more than 33%, while the share of sub-central in general government tax revenues rose from 16% to 17%. Some countries have embarked on a long-term decentralisation path involving wide-ranging changes to their institutional arrangements (). However, many attempts to reform fiscal relations have encountered difficulties. Various reforms – including the territorial reorganisation of public service delivery, changes to the sub-central tax structure and the tightening of sub-central fiscal rules – have stalled or been introduced only partially and after several unsuccessful attempts. The technical and political obstacles to wide-ranging reforms of fiscal arrangements are formidable. The question arises as to how they may be overcome and the benefits of decentralised policy making fully realised, especially in a context where sub-central governments will have to share in the efforts of fiscal consolidation.


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