On 20 December 2021 the OECD released the publication Fiscal Federalism 2022: Making Decentralisation Work. This looks at trends in relations with subnational governments as the world strives to emerge from the crisis caused by the pandemic.
Good practices in fiscal federalism
The report looks at intergovernmental fiscal relations and the way in which tax and spending power is assigned to levels of government to support economic growth. Decentralisation can permit improved provision of public services for business and households but may increase the complexity of intergovernmental relations. The report outlines good practice in designing institutions, delineating responsibilities and improving coordination between levels of government.
Evaluating fiscal equalisation
The report looks at the transfer of financial resources among subnational governments to mitigate regional differences in fiscal capacity and in spending requirements. It looks at pure revenue equalisation; revenue/cost equalisation; and gap-filling equalisation, examining the impact of each approach on the revenue disparities between subnational governments.
Spending autonomy and public sector performance
The report examines new measures of subnational spending autonomy for important sectors of local government service delivery and looks at the outcomes from different arrangements. The performance of the public sector can be strengthened by assigning responsibilities at the most effective level of government for their delivery, and the report looks at the example of healthcare provision. There is an analysis of performance monitoring and evaluation systems that allow public services to be benchmarked to promote learning about good practice in policy making.
Digitalisation – challenges and opportunities
Although there are opportunities for digitalisation in tax and expenditure and in service delivery, subnational governments often face skill shortages and do not have the requisite equipment or physical infrastructure. There are also challenges from cyber security risk management and data protection. Different levels of government must cooperate to support effective digitalisation of subnational governments.
Insolvency frameworks
Insolvency frameworks for state and local governments can stipulate procedures to resolve debt issues promptly, facilitating debt restructuring and fiscal recovery of subnational entities. The report looks at different designs for insolvency frameworks for subnational governments and looks at the insolvency regimes for municipalities in Colombia, Hungary, South Africa, Switzerland and the US.
Funding and Financing Local Government Public Investment
The report looks at the most important factors affecting the capacity of local government to finance public investment. Within the OECD countries most government investment is carried out at the local level, comprising on average 41% of the total public investment. The report looks specifically at public investment by local governments, examining the important factors and presenting illustrations from Denmark, Finland, Ireland, the Netherlands and New Zealand.
Lessons from the pandemic
The report looks at responses to the pandemic in terms of intergovernmental relations and highlights the lessons learned. Coordination between levels of government has been important in the response to the crisis. Also, the pandemic is influencing future intergovernmental relations as they will need to adapt to higher regional inequalities and greater interdependence between the policies of different levels of government.
