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Reforming Fiscal Federalism and Local Government

Beyond the Zero-Sum Game

image of Reforming Fiscal Federalism and Local Government

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.

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Spain: Reforming the funding of Autonomous Communities

When it was created in the 1980s, the Spanish system of financing Autonomous Communities (AC) provided for a renegotiation every five years. Each round of negotiation raised political tensions and subjected the central government to additional costs for reaching an agreement. The AC finance law (LOFCA: Ley Orgánica de Financiación de las Comunidades Autónomas) adopted in 2001 was supposed to remain in force indefinitely and thus to avoid such problems. However, since it did not include mechanisms to adapt to asymmetric shocks (such as uneven population increases across regions), it was criticised for generating inefficiencies and inequities in revenue allocation. After only a couple of years, the need to reform the system became apparent. Preliminary studies were undertaken between 2006 and 2008, negotiations were carried out in 2008 and 2009 between the central government and the ACs, and in December 2009, a new LOFCA was passed by the national parliament and subsequently ratified by all the ACs ().

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