EU economic governance and fiscal

decentralisation

Joaquim Oliveira Martins

Head, Regional Development Policy Division

OECD

Brussels, 24 June 2014

Subnational governments (SNGs) are key

economic actors in the OECD and the EU

39,9%

63,3%

50,0%

72,2%

33,2%

19,6%33,6%

51,7%

45,9%

65,8%

26,6%

15,7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Expenditure Staff

expenditure

Public

procurement

Direct

investment

Tax revenue Debt

OECD average Minimum Maximum European Union average

% of General Government - 2012

Weight of the subnational government expenditure

in GDP and Total Public expenditures

Australia*

Austria

Belgium

Canada**

Germany

Mexico* Spain

Switzerland*

United States*

Czech Rep.

Denmark

Estonia

Finland

France

Greece

Hungary

Iceland

Ireland Israel*

Italy

Japan*

Korea*

Luxembourg

Netherlands

New Zealand**

Norway

Poland

Portugal

Slovak Rep.Slovenia

Sweden

Turkey*

United Kingdom

OECD33

EU27

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Subnational government expenditure as a % of GDP in 2012

Su

bn

ati

on

al g

ove

rnm

en

t e

xpe

nd

itu

re a

s a

% o

f p

ub

lic

exp

en

dit

ure

in 2

01

2

* 2011 data ; ** : 2010 data

Role of Subnational Governments by types of

expenditures

26%

18%

14% 14%12%

16%

20%

13%12%

16%

20%18%

0%

5%

10%

15%

20%

25%

30%

Education Health Economic

Affairs

General

Services

Social

protection

Other*

OECD (27 countries) EU27

OECD and EU (2011, % of expenditure)

*Other: Defence; Public order and safety; Housing and community amenities; Recreation, culture and religion; Environment.

The role of SNGs is particularly marked for Public

Investments

5

72%66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ca

na

da

Be

lgiu

m

Un

ite

d S

tate

s

Ge

rma

ny

Sw

itze

rla

nd

Jap

an

Fra

nce

Fin

lan

d

OE

CD

33

avg

Ita

ly

Ire

lan

d

Au

stri

a

Au

stra

lia

EU

27

Ne

the

rla

nd

s

Me

xico

Isra

el

Sp

ain

De

nm

ark

Slo

ve

nia

Cze

ch R

ep

ub

lic

Ko

rea

Po

rtu

ga

l

Sw

ed

en

No

rwa

y

Un

ite

d K

ing

do

m

Slo

va

k R

ep

ub

lic

Ice

lan

d

Po

lan

d

Ne

w Z

ea

lan

d

Luxe

mb

ou

rg

Hu

ng

ary

Tu

rke

y

Est

on

ia

Gre

ece

Rest of public sector (central government and social security)

Subnational governments (States, regions and local governments)

Subnational direct investment as a % of public direct investment (2012)

Among subnational government expenditures,

Public investment was the most hit (EU, 2000-13)

In volume, base

year 2000 = 100

Change in 2013 (%)

+0,1%

-2,3%

-0,8%

+1,0%

-1,4%

+0,2%

100

105

110

115

120

125

130

135

140

145

150

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Total expenditure

Direct investment Social benefits

Staff expenditure Intermediate consumption

Very strong reductions in subnational

investment in some countries

7

* Average annual growth

rate 2007-2012

** Average annual

growth rate 2007-2011

IrelandSpain

IcelandTurkey**

PortugalItalyGreece

EUEstonia

United States*Slovak Rep.

AustriaCzech Rep.

HungarySwitzerland*

FranceJapan*Korea**PolandUnited Kingdom

SloveniaBelgiumMexico*GermanyNetherlandsAustralia*Luxembourg

NorwayDenmark

Israel*Canada*

FinlandSweden

-25% -20% -15% -10% -5% 0% 5% 10%

Average annual growth rate 2007-2013 (% in real terms)

• Invest using an integrated strategy tailored to different places• Adopt effective co-ordination instruments across levels of govt• Co-ordinate across SNGs to invest at the relevant scale

Pillar 1Co-ordinate across

levels of governments and policies

• Assess upfront long term impacts and risks• Encourage stakeholder involvement throughout investment cycle• Mobilise private actors and financing institutions to diversify sources

of funding and strengthen capacities• Reinforce the expertise of public officials & institutions • Focus on results and promote learning from experience

Pillar 2Strengthen capacities

and promote policy learning at all levels of

government

• Develop a fiscal framework adapted to the objectives pursued• Require sound and transparent financial management at all levels• Promote transparency and strategic use of procurement • Strive for quality and consistency in regulatory systems across

levels of government

Pillar 3Ensure proper framework

conditions for public investment at all levels of

government

8

A new OECD instrument: The Principles for Effective

Public Investment Across Levels of Government

This is the first OECD Instrument in the area of re gional policy and multi-level governance

This is the first OECD Instrument in the area of re gional policy and multi-level governance

The Governance system of SNGs:

a fragmented and evolving picture

Federations & quasi-federation

Unitary countries

38 960

4 160

360

573

78

2 489

1 766

2443 031310 8 185

36 828

8 222

437

114

74

11 638

446 311320

254

338

3 1962 935

2 3632 434

605

4202 875

6 267

103

106

211

226

OECD: 140 879 subnational governments in 2012:

• 136 346 municipal-level entities• 4 007 intermediary-level entities• 526 regional or State-level entities

10

Large variation in average population and

land size across municipalities

1317171724293236375052628796102126200220266266274299406440440601612

7989001 057

1 3921 552

2 1922 408

4 0256 000

0 1 000 2 000 3 000 4 000 5 000 6 000 7 000

Czech RepublicSlovak Republic

SwitzerlandFrance

LuxembourgHungary

GermanyAustria

ItalyEU27

BelgiumSpainIsrael

SloveniaNetherlands

PolandEstonia

JapanOECDTurkey

United StatesPortugal1

GreeceDenmark

Korea1United Kingdom1

IrelandMexicoNorwayFinlandIceland

SwedenChile

CanadaNew-Zealand

Australia

Average municipal area, km²

1 6801 7351 8503 1403 3053 5904 3204 6055 6705 6905 9057 1707 3058 2408 8159 1159 66511 72515 54516 91518 85525 18031 05032 93534 05034 88538 96040 08541 12544 78050 44056 180

64 55074 170

155 775220 285

0 50 000 100 000 150 000 200 000 250 000

Czech RepublicFrance

Slovak RepublicHungary

SwitzerlandAustriaIceland

LuxembourgEU27Spain

EstoniaGermany

ItalyCanada

United StatesOECD

SloveniaNorwayPolandFinland

BelgiumTurkey

IsraelSwedenPortugalGreeceIreland

AustraliaNetherlands

MexicoChile

DenmarkNew-Zealand

JapanUnited Kingdom

Korea

Average number of inhabitants per municipality

Regional governments vs. municipal

governments: a more contrasted picture

11

Germany

Mexico

ItalyFrance*

Spain

Japan

Poland

Netherlands

Chile DenmarkAustria Turkey Greece

Czech rep.Slovak rep.Hungary

Sweden New Zealand

Switzerland

Norway

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

5.500

0 10.000 20.000 30.000 40.000 50.000 60.000 70.000 80.000

Av

era

ge

re

gio

na

l g

ov

ern

me

nt

size

(th

ou

san

ds

of

inh

ab

ita

nts

)

Average municipal size (inhabitants)

France: without overseas regions ;

Belgium, United Kingdom, Canada, United States, Australia and Korea are not represented on this graph.

Average size of regional and municipal governments (population)

Size of regional government budget in 2012 (expenditure as a % of GDP)

Economic weight of regional governments

may not match their population size

12

1,0%

1,3%

1,5%

1,7%

2,2%

3,9%

6,0%

6,6%

9,7%

9,9%

11,3%

12,2%

13,4%

15,3%

18,1%

19,4%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Poland

France

Netherlands

Slovak Rep.

Norway*

Czech rep.*

Denmark

Sweden

Austria*

Mexico

Italy

Germany

Switzerland

Belgium

Spain

Canada

Austria* : excluding Vienna; Norway*: excluding Oslo

Czech republic*. estimated 2011 figures

Policy trend #1: Reforms for merging of

Municipalities

13

0

1000

2000

3000

4000

5000

6000

Au

stri

a (

19

50

)

Sw

ed

en

(1

95

2,

19

63

)

Jap

an

(1

95

3,

19

99

)

De

nm

ark

(1

97

0,

20

07

)

Fin

lan

d (

19

76

,

20

10

)

Be

lgiu

m (

19

75

)

Ne

w Z

ea

lan

d

(19

89

)

Lith

ua

nia

(1

99

4)

Gre

ece

(1

99

7,

20

11

)

Isra

el

(20

02

)

Tu

rke

y (

20

08

-

20

12

)

Latv

ia (

20

09

)

Number of municipalities before the reform Number of municipalities after the reform

Number of municipalities in 2012

Policy trend #2: A growing focus on

metropolitan governance

14

Average number of metropolitan governance bodies created or reformed in OECD countries per decade

0

5

10

15

20

25

30

35

40

45

50

1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010

Policy trend #3: Fiscal autonomy and

partnerships across levels of government

� Creation of new taxes

� Tax collection

� Leeway over tax rates

� Leeway over tax bases

� Legal power

� Regulatory / administrative /

adaptation power

� Scope of competences and

functions

Tax autonomy

index:

Own-source tax

revenue as a %

of total

revenues

The main components of fiscal

autonomy

0

2

4

6

8

10

Assets management

(financial, physical)

Tariffs & fees

(leaway)

Taxes

Grants and subsidies

(earmarked/general)

Borrowing

Budget management

Spending and investment

(norms & standards, etc.)

Human

resources

Local public service

delivery

Control : monitoring, audit,

evaluation, performance

assessment

Equalisation mechanisms

• OECD national accounts and Eurostat

• OECD (2013) « Regions at a Glance »

• OECD (2014) “Subnational government in OECD countries: key

data”

• “Investing Together: Working Effectively across Levels of

Government”, OECD Publishing (forthcoming December 2013)

• OECD Regional Outloook 2014 (forthcoming)

• http://www.oecd.org/gov/regional-policy/

• OECD Fiscal Network: : http://www.oecd.org/tax/federalism/

Thank you !

16