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FISCAL FEDERALISM DURING AND AFTER THE GREAT RECESSION Hansjörg Blöchliger Head, OECD Fiscal Federalism Network Prato, 2 October 2014.

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Presentation on theme: "FISCAL FEDERALISM DURING AND AFTER THE GREAT RECESSION Hansjörg Blöchliger Head, OECD Fiscal Federalism Network Prato, 2 October 2014."— Presentation transcript:

1 FISCAL FEDERALISM DURING AND AFTER THE GREAT RECESSION Hansjörg Blöchliger Head, OECD Fiscal Federalism Network Prato, 2 October 2014

2 SNGs are recovering from the crisis… Source: Fiscal Federalism 2014

3 … and SNG debt levels are stabilising negative consequences for Source: Fiscal Federalism 2014

4 SNG debt is considerable in a few countries, mainly federal Source: Fiscal Federalism 2014

5 Spreads between low- and high-ranked SNG bonds have widened Source: OECD Revenue Statistics 2013

6 SNG taxes rose more than spending. Transfers declined slightly after the crisis

7 SNGs help stabilise general government debt Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 State-level government budget balance (change) 0.340.71***0.73*** Local government budget balance (change) -0.41**-0.32*-0.19 Long-term interest rates (change) -0.14***-0.20***-0.13***-0.06***-0.09***-0.11*** Exchange rate (change) 0.040.060.070.15*** 0.10**0.02 Inflation (change) -0.11-0.08**-0.02-0.06***-0.07*** Strongly left-leaning government -0.01-0.04**-0.03*-0.02**-0.03*** Strongly right-leaning government -0.01 -0.01* Observations145164183472473474 LR-test of independent equations7.35***7.39***12.75***4.35**1.81.43

8 Transfer cuts help general government to consolidate Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Central government transfer spending (change in % of GDP) -0.09-0.12-0.11* State/regional government transfer spending (change in % of GDP) -0.12-0.80-1.2*** Growth rate8.78***5.29***4.78**8.90***3.912.28*** Long-term interest rates (change)-0.07***-0.08***-0.11***-0.13***-0.22***-0.14*** Exchange rate (change)0.1242**0.04-0.040.020.050.03 Inflation (change)-0.07***-0.08***-0.07***-0.09**-0.08**-0.01*** Sub-central budget balance (change)0.130.240.220.350.68*** Strongly left-leaning government-0.02**-0.03***-0.02**-0.02-0.04** Strongly right-leaning government-0.01 -0.04-0.02*-0.01-0.01** Observations390365396138157176 LR-test of independent equations4.56**0.305.44**5.89**7.86***11.19***

9 The strength of fiscal rules varies across countries Composite indicator, 2012

10 The relationship between rules and outcomes is not straightforward

11 Fiscal constitutions have kept changing over the past 100 years

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