Fiscal%20Design%20across%20Levels%20of%20Government:%20EU%20Applicant%20States%20and%20EU%20Member%20States

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Fiscal Design across Levels of Government EU
Applicant States and EU Member States

• By Jeffrey Owens
• Head
• Centre for Tax Policy Administration
• OECD

Workshop on Decentralisation trends,
perspectives and issues at the threshold of EU
enlargement Copenhagen, October 10-11, 2002
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Main Topics

• I. Accession opportunities challenges
• II. Fiscal decentralisation main findings of the
  OECD- CTPA Surveys
• III. Some general conclusions and perspectives

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Current and Prospective EU Members
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GDP per head
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Key Indicators
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I. Accession opportunities challenges

• Accession will fundamentally change the nature of
  the European Union
• Frontiers will move to the East
• The new Union will be confronted with a greater
  economic diversity
• The experience of Germany suggests this will be
  an expensive and difficult integration

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I. Accession opportunities challenges

• But it will fulfill the vision of the founder of
  the Community
• to build a truly integrated Union
• with markets and skills that can match the United
  States
• and with the economic and political weight to
  make its voice heard on the global stage
• Realising this vision is the business of all
  levels of government

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What are the new opportunities?

• Continuing the process of promoting local
  democracy
• drawing upon the experience of EU Countries that
  have long histories of decentralised government
• Tapping into a wider pool of experimentation
• Accessing resources available in Brussels
• Helping the expanded community to stay in touch
  with citizens

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What are the new challenges?

• Meeting the Stability Pact requirements
• Meeting the State Aid Rules
• Financing implementation of EU Directives
• Central government squeezed between higher
  lower levels
• Making sure the voice of local government is
  heard in Brussels

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II Main findings

• Current approaches to sub-national government
  within the EU
• Federal approach (Austria, Germany, Belgium)
• Tradition of relatively strong sub-national
  government (Denmark, Finland, Sweden)
• Tradition of relatively weak sub-national
  government (Greece, Ireland, Portugal)
• Intermediate approach (France, Italy, Luxembourg,
  Netherlands, Spain, UK)

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Current approaches to sub-national government in
10 Applicant Countries

• Unitary approach
• Four countries with genuine regional level (Czech
  Republic, Latvia, Poland, Slovak Republic)
• Only two countries with two tiers of local
  government (Latvia, Poland)

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Distribution of municipalities by size range
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Decentralisation profiles Sub-national
expenditure levels ( of GDP)
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Decentralisation profiles Sub-national revenue
levels
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The allocation of responsibilities

• (sub-national spending by function as a
  percentage of total sub-national spending. Mean
  values)

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Composition of sub-national revenues
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The choice of sub-national taxes
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Local tax autonomy
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Free revenues and tied revenues
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III Some general conclusions

• Problem of fragmentation too many too small
• Total government spending in relation to GDP is
  40 in applicant States (45 in EU), but the
  applicants decentralise much less (7 of GDP
  against 16)
• Inverse relation between degree of
  decentralisation and importance of tax revenue as
  source of sub-national finance
• Autonomy over sub-national taxes overall lower
  in Applicant States
• Institutional framework for central/local
  relations in the applicant States emerging
  systems of negotiations still many countries
  have not established standard procedures (e.g. on
  bailouts)

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What are the issues that Applicant States will
face?

• The balance between national fiscal targets and
  sub-national fiscal discretion
• How fiscal decentralization may be coordinated
  with macroeconomic stability?
• Can stabilisation agreements be developed between
  different levels of government?
• What possible institutional framework for
  dialogue between EU and sub-national governments?

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Further perspectives

• How to strengthen ties between sub-national
  government in the expanded Union
• Need to reexamine the role of intermediate
  government
• Need to share experiences and identification of
  best practices both within and outside of EU
• Need to develop reliable internationally
  comparable statistics
• The OECD Forum on Fiscal Relations across Levels
  of Government