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
Main Topics

I. Accession: opportunities & challenges

II. Fiscal decentralisation: main findings of the
OECD- CTPA Surveys

III. Some general conclusions and
perspectives
Slide no.
2
Current and Prospective
EU Members
Current EU Members
Prospective EU Members
Slide no.
3
0
Turkey
Slovenia
Slovak Republic
Romania
Poland
Malta
Lithuania
Latvia
Hungary
Estonia
Czech Republic
Cyprus
Bulgaria
Mean 13 Applicants States
Mean 15 EU member
States
GDP per head
GDP per head
25000
20000
15000
10000
5000
GDP per head
Slide no.
4
Key Indicators
Bulgaria*
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania*
Slovak Republic
Slovenia
Turkey*
Population
(in 1000)
Size
(km2)
Growth
Inflation
rate
Public
deficit
(% GDP)
Public
debt (%
GDP)
8,170
757
10,273
1,436
10,024
2,373
3,696
391
38,646
22,435
5,401
1,990
65,293
110,971
9,251
78,866
45,227
93,030
64,589
65,300
316
312,685
238,391
49,035
20,273
769,604
4.00
4.00
3.30
5.00
3.80
5.90
7.70
-0.80
1.10
5.30
3.30
3.00
-7.40
10.3
4.9
3.9
3.9
10
2.6
0.9
2.4
10.1
45.7
12.1
8.9
54.9
-0.7
-3.2
-4.2
-0.7
-3.1
-2.7
-3.3
-6.6
-3.5
-3.8
-6.7
-2.3
-11
76.9
63
17.3
5.3
55.7
14.1
23.7
60.6
40.9
22.9
32.4
25.8
57.8
2.54
1.50
8.45
2.30
-3.67
-0.60
36.58
63.00
Weighted average 10 Applicant States
Weighted average 15 Member States
Slide no.
5
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
Slide no.
6
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
Slide no.
7
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
Slide no.
8
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
Slide no.
9
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)
Slide no.
1
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)
Slide no.
1
Distribution of municipalities by
size range
80.0
70.0
50.0
40.0
30.0
20.0
Population of
authority
10.0
Over 100000
50000-100000
10000-50000
5000-10000
2000-5000
1000-2000
Under 1000
Slovenia
Slovak Republic
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
Czech Republic
0.0
Bulgaria
% of authorities
60.0
Slide no.
1
Decentralisation profiles
Sub-national expenditure levels
(% of GDP)
Slide no.
1
Decentralisation profiles
Sub-national revenue levels
Slide no.
1
The allocation of
responsibilities
(sub-national spending by function as a percentage of total subnational spending. Mean values)
35.0
30.0
Applicant
States
25.0
20.0
Selected
member
States
15.0
10.0
5.0
Others
Transport
Culture
Housing
Welfare
Health
Education
Gen. pub.
services
0.0
Slide no.
1
0%
United Kingdom
Sweden
Spain
Netherlands
Italy
France
Denmark
Belgium
Slovenia
Slovak Republic
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
Czech Republic
Bulgaria
Composition of sub-national
revenues
100%
90%
80%
70%
60%
50%
40%
Grants
30%
Non-tax revenues
20%
Tax revenues
10%
Slide no.
1
The choice of sub-national
taxes
Slide no.
1
Local tax autonomy
Level
Bulgaria (2000)
Czech Republic (1999)
Estonia (1999)
Hungary (1999)
Latvia (1999)
Lithuania (1999)
Poland (1999)
Romania (2000)
Slovak Republic (2000)
Slovenia (2000)
Mean (by country)
Belgium (1995)
Denmark (1995)
Netherlands (1995)
Spain (1995)
Sweden (1995)
United Kingdom (1995)
Mean (by tier)
Sub-national
government taxes
as % of total tax
revenue
SNG sets
tax
rate
and base
SNG sets
tax rate
only
SNG
sets
tax
base
only
(a)
(b)
(c)
…is set
by SNG
(d1)
Revenue sharing where the CG:SNG revenue split…
…can be
…is set in legis-lation
…is set annually
changed only if
and may be changed
by CG as part of
SNG agree
uni-laterally by CG
the budget
(d2)
(d3)
(d4)
CG sets
both rate
and tax
base of
SNG tax
Total
(e)
100.0
Local
Local
Local
Local
Local
Local
Local
Local
Local
Local
-
10.0
11.1
16.2
10.4
17.1
22.0
8.3
10.5
4.0
7.9
11.8
2.7
49.2
7.0
16.7
7.6
5.6
9.2
41.9
6.0
28.2
0.6
9.2
0.6
0.6
0.4
0.2
0.0
0.0
39.0
91.7
90.8
57.6
82.3
36.1
61.0
50.8
75.0
64.8
25.2
100.0
100.0
18.4
21.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Local
Communities
Regional
Municipalities
Counties
Municipalities
Polder boards
Local
Regions
Municipalities
Counties
Local
-
6.0
13.0
10.0
22.0
9.0
1.0
1.0
9.0
5.0
22.0
11.0
4.0
9.4
13.0
8.0
33.0
15.0
4.0
6.1
84.0
3.0
92.0
96.0
93.0
100.0
100.0
51.0
7.0
96.0
100.0
100.0
76.8
0.0
0.0
97.0
16.0
78.0
15.9
2.0
4.0
0.5
1.0
0.1
7.0
0.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
-
Slide no.
1
Mean
Slovenia
Slovak Republic
Poland
Lithuania
Latvia
Hungary
Estonia
Czech Republic
Bulgaria
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Romania
Free revenues and tied
revenues
Tied revenues (specific grants)
Other free revenues (general grants and tax categories d-e)
Ow n revenue (tax categories a-c and non tax revenues)
Slide no.
1
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”)
Slide no.
2
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?
Slide no.
2
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
Slide no.
2