Recent reforms in decentralization frameworks in OECD countries: financial, institutional and territorial aspects Joaquim OLIVEIRA MARTINS Head, OECD Regional Development Policy Division Local Finance Management (LFM) 7-8 MAY 2015, Lombok, Indonesia

8 countries with only one SNG level Municipalities 18 countries with two SNG levels Municipalities + regions 8 countries with three SNG levels Municipalities + intermediary entities + regions 9 federations Australia Austria Canada Mexico Switzerland Germany Belgium Spain* United States 25 unitary countries Estonia Finland* Ireland Island Israel Luxembourg Portugal* Slovenia Chili Korea Denmark Greece Hungary Japan Norway New-Zealand Netherlands Czech Republic Slovak Republic Sweden Turkey France Italia Poland United Kingdom * Spain : quasi-federal country ; * Portugal: existence of two autonomous regions ; *Finland: existence of one autonomous regions. Organisation of Subnational governments (SNGs) in the OECD

Sub-national governments: a very fragmented governance structure Federations & quasi-federations Unitary countries

A tension between administrative structures and socio-economic functions, which affects all levels of government Demographic factors Socio-economic factors Public finance and management “Functional territory” “Administrative” territory

A wide variation of spending devolution patterns across the OECD 5

Wide variation in the structure of Municipal governments across the OECD 6

Significant waves of municipality merging in the OECD and EU since Recent trends : Turkey (March 2014) Ireland (May 2014) Austria (Styria / January 2015) Norway (gradual, on- going until 2017) Northern Ireland (from 1 April 2015) Finland (gradual, on- going) Luxembourg (gradual, on-going) Netherlands (gradual, on-going)

Very fragmented governance in many OECD Metropolitan areas 8 Index of municipal fragmentation in metropolitan areas in the OECD, 2012 Source: OECD metropolitan database. OECD average : 3,7 municipalities per habitants

Recent waves of Metropolitan governance reforms 9 9 Number of metropolitan governance structures (Metro Authorities) created of reformed in the OECD

Less fragmented urban governance promotes growth Source: Ahrend et al (2014 ) Reducing by half the fragmentation is comparable of doubling city size

SNGs are key economic and policy actors across the OECD

SNGs expenditure by economic function Key sectors are education, health and economic development * Other: Defence; Public order and safety; Housing and community amenities; Recreation, culture and religion; Environment.

SNGs in Total Public Employment SNGs staff expenditure represent 76% of public staff expenditure in federal countries and 45% in unitary countries 13 SNGs staff expenditure as a % of public staff expenditure (2013)

SNGs in Total Public procurement 61% of public procurement is made by SNGs in federal countries and 39% in unitary countries 14 SNGs procurement as a % of total public procurement in 2013

SNGs in Total Public Investment 61% of public investment 15 Subnational direct investment as a % of public direct investment (2013)

16 Taxes and grants are the main sources of SNG revenues 44% and 37% respectively of SNG revenue % of total SGNs revenue, 2013

The crisis and its consequences has had a strong impact on SNG revenues In volume, base year 2000 = 100

A very sharp decrease on central government transfers & subsidies to SNGs in many EU countries 18 Change in grants and subsidies revenue of SNGs between 2009 and 2013 (% Annual average change in real terms)

The structure of SNG expenditure was also strongly affected by the crisis, investment suffered the most In volume, base year 2000 = 100 Change in 2013 (%)

The fall in SNG public investment has been dramatic in some OECD countries 20 * Average annual growth rate ** Average annual growth rate Average annual growth rate (% in real terms)

Invest using an integrated strategy tailored to different places Adopt effective co-ordination instruments across levels of government Co-ordinate across SNGs to invest at the relevant scale Pillar 1 Co-ordinate across governments and policy areas Assess upfront long term impacts and risks Encourage stakeholder involvement throughout investment cycle Mobilise private actors and financing institutions Reinforce the expertise of public officials & institutions Focus on results and promote learning Pillar 2 Strengthen capacities and promote policy learning across levels of government Develop a fiscal framework adapted to the objectives pursued Require sound, transparent financial management Promote transparency and strategic use of procurement Strive for quality and consistency in regulatory systems across levels of government Pillar 3 Ensure sound framework conditions at all levels of government 21 The OECD Recommendation on the Governance of Public Investment

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