Tax autonomy and decentralisation in OECD countries. Network on Fiscal relations across levels of Government José Maria Piñero Campos OECD Fiscal Federalism

INDEX Tax autonomy and decentralisation –Tax decentralisation –Tax autonomy –Tax Decentralisation vs. Tax Autonomy –Tax autonomy structure –Pros and cons of tax Autonomy –Tax Autonomy and disparities –Tax autonomy and tax rate evolution Network on Fiscal relations across levels of government –Documents –Workshops –Statistical databases –Current Tasks

Tax Decentralisation

Tax Autonomy

Tax Decentralisation vs. Tax Autonomy

Ideal Tax autonomy structure Taxes which are growth-enhancing at sub-central level are the same as the ones which are growth-enhancing at central level But, there are some additional requirements : –Link between taxes paid and public services received –SCG Taxes should be non-mobile –Non redistributive –Non cyclical –Tax base should be evenly distributed across jurisdictions

Ideal Tax autonomy structure Property Taxes Personal Income Taxes –redistributive Consumption Taxes. –Divert taxes among jurisdictions Corporate Income Taxes –Highly cyclical, –Geographically concentrated

Real Tax autonomy structure

Pros and cons or Tax autonomy Pros –Make governments more responsive to citizens’ tastes and preferences –Improve budget management efficiency. A more reduced size of sub- central governments have been reported (Rodden (2003), Fiva (2006), Sorens (2008)) –Promote democratic accountability –Provide incentives for growth-oriented economic and fiscal policies –Could reduce disparities when small jurisdictions could benefit from bigger neighbour jurisdictions Cons –Could increase disparities. If equalisation is not enough poorer jurisdictions could be obliged to do a bigger effort –Could deteriorate SCG revenues (race to the bottom). –Could deteriorate SCG fiscal stability, if it is based on more volatile taxes as Corporate or consumption taxes

Tax Autonomy and disparirites. What happen when equalisation is small?: CANADA S/RSWITZERLAND S/R FRANCE (Departments)

Tax Autonomy and disparirites. What happen when equalisation is high?: SWEDEN LOC PORTUGAL LOC DENMARK LOC FINLAND LOC

Tax Autonomy and disparirites. What happen when equalisation is very high?: SPAIN (Regions)

Tax autonomy and Tax rate evolution

Tax autonomy and tax rate evolution, an ideal evolution?

OECD Network on Fiscal relation across levels of government Created in 2003 and managed by 3 OECD Directorates: –Tax Policy and Administration (CTP) –Economics Department (ECO) –Directorate for Public Governance and Territorial Development (GOV) Providing OECD countries with the analytical and statistical underpinnings for decisions on how to organise the relationships among central, regional and local governments A high level, multidisciplinary policy dialogue platform, between policy makers for taxation and expenditure. Participants: –17 OCDE countries, –25 countries are providing statistical data and policy information –The International Monetary Fund, the World Bank, the Council of Europe and the European Commission participate in the Network

Fiscal Network. Documents Fiscal policy across levels of government in times of crisis Explaining the Sub-National Tax-Grants Balance in OECD Countries Finding the Dividing Line between Tax Sharing and Grants: A Statistical Investigation The Fiscal Autonomy of Sub-Central Governments: An Update The Spending Power of Sub-Central Governments: A Pilot Study Taxes and Grants: On the Revenue Mix of Sub-Central Governments Market Mechanisms in Sub-Central Public Service Provision Promoting Performance: Using Indicators to Enhance the Effectiveness of Sub Central Spending Fiscal Equalisation in OECD countries Intergovernmental transfers and decentralised public spending Fiscal autonomy of sub-central governments Fiscal rules for sub-central governments: design and impact

Fiscal Network. Workshops Tax competition at Sub-central level. Bern, May-June 2010 Economic Crisis and Sub-central Fiscal Policy. Paris, June 2009 Taxes versus Grants. Vienna, May 2008 Fiscal Equalisation in OECD Countries. Zaragoza, June 2006 The Efficiency of Sub-central Spending. Paris, May 2006

Fiscal Network. Statistical database Intergovernmental transfers: update of National Accounts data Taxing power of local and regional governments in OECD countries Revenue structure of sub central government Intergovernmental grants

Fiscal Network. Current tasks Reforming Fiscal Relations across Levels of Government: –the way in which political and institutional factors influence the design, decision-making process, adoption and long-term implementation of fiscal federal reforms. –Two kind of results are foreseen: A summary report with the basic elements to task into account when reforming fiscal relations Some country case analysis Sub-Central Tax Competition: –What means tax competition at sub-central level? –What impact has the tax competition? –What are the potential framework conditions to make it beneficial for fiscal policy and fiscal outcomes?

Seminar about Fiscal decentralisation of Public Administrations Cartagena, 2-6 November 2010 In collaboration with Instituto de Estudios Fiscales To share Spain and OECD knowledge in fiscal federalism To create a policy dialog platform about the most relevant trends and the exchange of experienceies and information about regional and local financing, fiscal rules and budgetary discipline The inscription is open till 24th September in the Centro de Formation de la AECID de Cartagena de Indias webpage:

Seminar about Fiscal decentralisation of Public Administrations Cartagena, 2-6 November 2010 ISSUES Sub-central governments financing: Basic principles. Tax financing and transfer financing. International existing models. Taxes as financing source of sub-central governments. Taxes adequate for decentralisation. Tax decentralisation and tax autonomy. Consequences of tax decentralisation. Tax competition. Equalisation Fiscal decentralisation and budgetary stability. Budgetary consolidation. Sub central governments debt. Management of a fiscal decentralised system. Responsibilities distribution. Principles: institutional loyalty and co-ordination, transparency, etc. Decentralized public services provision. Indicators, market mechanisms in the provision of public services. The new technologies.