BUILDING THE CAPACITY FOR EFFECTIVE PUBLIC SPENDING

1
BUILDING THE CAPACITY FOR EFFECTIVE PUBLIC
SPENDING

• Institutional arrangements and sub-national
  finance

Visit of Mexican Legislators On Fiscal Policy and
Public Finance OECD Headquarters, Paris 26
March 2007 Claire Charbit and Lee Mizell OECD
Regional Competitiveness and Governance Division
2
Governance of Regional Development Policy

• In all national case studied, RDP is a shared
  responsibility often employing contractual
  mechanisms for dealing with co-ordination needs
  (e.g. France, Italy, Spain, Canada, Germany)
• A contract between levels of government is any
  arrangement reorganising, beside the
  constitution, the rights and duties of
  governments
• Contracts among levels of government are
  unavoidable (vertical interdependencies
  assignment of responsibilities)
• Contracts allow a customized management of
  interdependencies, useful in either unitary or
  federal contexts
• Contracts are tools for dialog, for clarifying
  responsibilities, for learning
• Bilateral commitments must be as  verifiable 
  as possible
• Coherence of Regional Policy is needed for
  improving public spending.

3
Effective place-based spending rests on three
important pillars
at all levels of government
4
CHALLENGE 1 Developing coherence by enhancing
institutional arrangements

• Sub-secretariat (e.g. Italy before) Single
  ministry (e.g. Italy present)
• Agency model (e.g. Canada)

5
Fiscal Federalism Issues and Institutional
Concerns

• Local Public Services are absolutely required for
  social and economic development
• Who provide them and with what type of budget?
• Providing basic services more effectively allow
  for available funds for economic development
  support
• What strategies are used by OECD countries for
  improving effectiveness of local public services
  delivery?
• Place based approaches require the participation
  of different levels of government
• What are the mechanisms used by OECD countries
  for governing regional development policy?

6
Sub national governments' share in general
government revenues and expenditure per cent
(2003)
Fiscal Autonomy and Fiscal Decentralisation
Revenues
Expenditures
7
Effectiveness of Sub Central Public Spending

• Funding arrangements and budget rules
• Types of grants (earmarked vs. general purpose)
• Multi-year budgeting
• Competition and other market-based mechanisms
• On Supply side (less monopolistic behaviours
  thanks to competitive tendering for public
  procurement), and
• on Demand side (more user fees)
• The relevant size for organising local public
  service provision
• Mergers vs. cooperation
• Central government incentives
• Urban and rural considerations
• Indicators to measure performance
• Evaluation
• Incentives

8
CHALLENGE 2 Strengthening finances for
place-based policies

• 3 categories of challenges
• Funding at the national level
• Co-financing for regional development
• EU Structural Funds
• Fiscal relations among levels of government
• Low own-source revenue

9
CHALLENGE 3 Strengthening sub-national
capacities

• Professional workforce
• Extend LSPC to all public servants
• Continue extension of similar reforms at
  sub-national levels
• Management of diverse stakeholders
• Assess and strengthen existing mechanisms
• Monitoring and evaluation
• Build sub-national capacities for monitoring and
  evaluation
• Extend evaluation to mechanisms of co-ordination
• Diffuse good practice
• Proposed regional development agencies could
  provide forum
• Accountability
• Strengthening capacities including sub-national
  finance improves accountability

10
Sub-national tax revenue in Mexico accounts for
3 of total tax revenue
Distribution of total tax revenue by sub-sector
of government, 2004
Source OECD (2006), Revenue Statistics Note
(1) VAT is collected by the federal government
and all receipts are appropriated to States and
territories