An OECD Working Paper entitled Twenty years of tax autonomy across levels of government: measurement and applications was released on 4 December 2019.

The paper notes that if a local or regional government can set its own tax bases, tax rates or other features of taxation it can achieve a high level of tax autonomy. Therefore tax autonomy is an important factor in comparing the relative importance of state and local governments in the fiscal system of each country and in making meaningful comparative studies.

Over the past few decades the OECD has developed a taxonomy for assessing the level of tax autonomy of each country. The taxonomy operates by assigning a policy-based code to each instrument used by the governments to indicate the level of tax autonomy. Then the share of total government revenue, by level of government, assigned to each tax autonomy code is calculated. The OECD has carried out a tax autonomy study every three years since 2003, the latest being completed in 2017.

These tax autonomy indicators show that local governments in the OECD have less tax autonomy than might be implied by measures of decentralisation based on simple expenditure or revenue. The largest degree of discretion over taxes available to sub-central governments (SCGs) is in relation to the recurrent taxation of immovable property.

The profile of local government tax autonomy differs significantly between federal and unitary countries, with differences between countries most notable among unitary countries. The statistics indicate that the fiscal autonomy of local governments has gradually increased over time. Studies show that sub-central governments in the US have more tax autonomy on average than those in OECD countries, with more reliance on property taxation.

Nearly three-quarters of local government tax revenue in the US comes from the property tax. However more than 90 percent of property tax revenues are subject to a state government-imposed tax rate or tax revenue restriction. Local governments in the US have a considerable degree of taxing power with respect to certain other taxes including license taxes and specific sales taxes. Local government tax autonomy in the US is however restricted by the widespread presence of the rate and relief limitations placed on the property tax.

The paper looks at how the OECD methodology could be adjusted to deal with some of the challenges to measuring tax autonomy and looks at how the coverage and timeliness of the statistics could be increased.

The paper notes that the OECD data on tax autonomy have been used in various studies to examine the effect on policy outcomes. For example, the effect of levels of tax autonomy on long-term economic growth have been studied, with mixed results.