OECD Regional Development Working Papers

Working papers from the Regional Development Policy Division of the OECD cover a full range of topics including regional statistics and analysis, urban governance and economics, rural governance and economics, and multi-level governance. Depending on the programme of work, the papers can cover specific topics such as regional innovation and networks, the determinants of regional growth or fiscal consolidation at the sub-national level.


A Sub-national Perspective on Financing Investment for Growth II - Creating Fiscal Space for Public Investment

The Role of Institutions

Sub-national governments (SNGs) are key players for public investment in OECD countries, responsible for nearly two-thirds of it. At the same time, both the well-being of the population and economic performance depend on an adequate provision of public services, which require public facilities and thus public investment. Ensuring that sub-national governments command the resources for necessary public investment is hence important. While in the immediate, the fiscal space of a SNG for public investment is basically determined by its current fiscal capacities, in a longer-term perspective the evolution of fiscal space comes to depend increasingly on the institutional context. This includes the national framework of fiscal relations across levels of government, the nature and characteristics of SNGs’ revenue sources and spending responsibilities, SNGs resilience to crises, and their structural ability to borrow. This paper explores the institutional ability of SNGs to influence their fiscal space for public investment. In this context, it also analyses the main challenges to be faced by SNG finances in the decades to come, as well as recent reforms implemented by SNGs to tackle these specific issues.


Keywords: public services, fiscal relations across levels of government, institutions, sub-national government, fiscal space, public investment
JEL: H71: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue; H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession; G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; H74: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Borrowing; H41: Public Economics / Publicly Provided Goods / Public Goods
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