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

This workshop presentation by Jeffrey Owens discusses the opportunities and challenges of fiscal decentralization in the context of EU enlargement. It explores the main findings of OECD-CTPA surveys, provides insights on current and prospective EU members, and concludes with perspectives on strengthening ties between sub-national governments.

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

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  1. 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

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

  3. Current and Prospective EU Members

  4. GDP per head

  5. Key Indicators

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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)

  11. 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)

  12. Distribution of municipalities by size range

  13. Decentralisation profiles Sub-national expenditure levels (% of GDP)

  14. Decentralisation profiles Sub-national revenue levels

  15. The allocation of responsibilities (sub-national spending by function as a percentage of total sub-national spending. Mean values)

  16. Composition of sub-national revenues

  17. The choice of sub-national taxes

  18. Local tax autonomy

  19. Free revenues and tied revenues

  20. 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”)

  21. 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?

  22. 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

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