Fiscal Federalism and Political Decentralization

Fiscal Federalism and Political Decentralization

Lessons from Spain, Germany and Canada

Studies in Fiscal Federalism and State–local Finance series

Edited by Núria Bosch and José M. Durán

This book analyzes political decentralization and fiscal federalism in Canada and Germany, both traditional federal countries, and in Spain, a unitarian country engaged in the last two decades in a process of decentralization. Three key issues required for a well designed financing system are analyzed in depth, namely: tax assignment, equalization grants – i.e. redistribution of money from the wealthy regions or the national government to poorer regions, and the role of local governments in the administration of taxes.

Chapter 3: Tax Assignment and Tax Autonomy in OECD Countries

Hansjörg Blöchliger

Subjects: economics and finance, political economy, public finance, politics and public policy, political economy, public policy


1 Hansjörg Blöchliger 1 INTRODUCTION Tax autonomy is part of the institutional arrangement – such as responsibility and revenue assignment – in which the different levels of government operate. A common way to compare and assess tax autonomy is the extent to which resources and responsibilities are under the control of local and regional governments. Sub-central governments’ (SCGs) tax and expenditure indicators (or ‘decentralization ratios’) can help to assess fiscal decentralization and its evolution over time, and give a first impression of how much power SCGs enjoy. The following figures show the current state of financial decentralization as measured by sub-central government shares of total tax revenue and expenditure in OECD countries (Figure 3.1) and the evolution of these indicators over the last decade (Figure 3.2). The stylized facts shown by these figures can be summarized as follows: ● ● The degree of decentralization varies greatly across OECD countries. While the sub-central share of total government expenditures varies from less than 6 per cent to more than 60 per cent, taxes accruing to sub-central governments extend between 3 and 50 per cent. The constitutional background of a country – whether it is federal or unitary – says little about actual fiscal autonomy. Local governments in some unitary countries have a higher share in public spending than local and regional governments together in federal countries. The sub-central tax share and the sub-central expenditure share have diverged over the last ten years. While the share of sub-national expenditures generally increased, local taxing power – with a...

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