Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Database If the sub-national fiscal autonomy is limited, there is no great need for rules of borrowing (Table 2, col. 3); “ministerial approval” is then quite simply the rule. In most other countries, such rules are regarded as necessary. Most often the “golden rule” is prescribed, which means that borrowing is allowed up to the level of public investment undertaken in that period. But in several countries no such restrictions exist (e.g., Canada for the provinces and the territories, U.S., Norway, the Netherlands). MACROECONOMIC MANAGEMENT OF DECENTRALISED FISCAL DECISIONS Sub-national public spending as a percentage of total government spending differs widely between countries (Table 1), ranging between 5 percent (Greece) and 57.8 percent (Denmark). A relatively low level of sub-national spending can be observed, apart from Greece, also in Portugal, Luxembourg and France. All other countries spend at least a quarter of public expenditures at the subnational level (United Kingdom: 25.9 percent). Interestingly, some countries with unitary governmental systems (Denmark, Japan and Sweden) spend even more at sub-national levels than the average of the federally organised countries, which stands at 39.0 percent. Thus, in most countries subnational public spending accounts for a considerable part of total government spending. This leads to the question of how macroeconomic management is performed in order to secure overall fiscal discipline. Compliance with overall macroeconomic policy or, at least, securing sub-national financial stability and sustainability must be enforced in some way (Table 2, col. 4). Fiscal behaviour might be disciplined by market forces (interest rate and rating of the bonds issued), which can be additionally strengthened by the national level giving no guarantees for sub-national borrowing (Canada, U.S., Sweden, Finland). An alternative is to put administrative or financial sanctions on the sub-national unit that misbehaves. This instrument is used by most countries to enforce compliance. A third way of enforcement is the so-called “peer pressure” which means that countries have incentives to orientate their fiscal behaviour on fellow sub-national units that have better balanced budgets or at least correspond to the average of the others’ bud- The design of rules to control the fiscal behaviour of sub-national government levels in order to make them comply with the overall macroeconomic policy shows large differences between countries (Table 2, col. 2). The general type of co-ordination ranges from “limited fiscal autonomy” (i.e., no need for co-ordination), to “no formal co-ordination” (i.e., with a substantial degree of fiscal autonomy), to a “balanced-budget rule” and finally to a “co-operative approach”. Table 1 Sub-national public spending as a percent of general government spending, 2001 Federal countries Canada United States Germany Belgium Austria Average In some countries, such as Sweden and Finland, it appears sufficient to prescribe the balanced budget rule (with a certain leeway to carry-over deficits and surpluses) and to pose no explicit restrictions on borrowing. A co-operative approach is followed by three federal countries (Germany, Belgium, Austria) and by two unitary countries (Denmark and the Netherlands). In most cases, such an approach means that a domestic stability pact is established. No formal co-ordination can only be observed in federal states, while several of the unitary countries provide their sub-national levels only with limited fiscal autonomy, evading the problem that sub-national levels might disturb national macroeconomic targets. 56.5 40.0 36,1 34.0 28.5 39.0 Unitary countries Denmark Sweden Japan Norway Finland Netherlands Spain Italy Ireland United Kingdom France Portugal Luxembourg Greece 57.8 43.4 40.7 38.8 35.5 34.2 32.2 29.7 29.5 25.9 18.6 12.8 12.8 5.0 Average 29.8 Source: OECD, Economic Outlook, 74, 2/2003, p. 145 (adapted). 57 CESifo DICE Report 1/2004 Database Table 2 Macroeconomic management of sub-national fiscal behaviour Country Type of co-ordination Rules for borrowing Enforcement Canada No formal co-ordination, but balanced-budget constraints No restrictions for provinces and territories; golden rule for municipalities; carry-over of surpluses to next year Market discipline; administrative sanctions; no government guarantee United States No formal co-ordination, but balanced budget constraints No restrictions Market discipline; no government guarantee Germany Co-operative approach; domestic stability pact Golden rule for most Länder and municipalities Peer pressure exerted by the Financial Planning Council Belgium Co-operative approach; targets for expenditure growth On approval by central government Peer pressure and administrative sanctions Austria Co-operative approach; domestic stability pact No restrictions for Länder; municipal borrowing regulated by the Länder. Peer pressure and financial sanctions (fines) Federal countries Unitary countries Denmark Co-operative approach, formal co-operation between levels Ceiling for long-term borrowing; Golden rule for municipalities No restrictions Peer pressure and financial sanctions Sweden Balanced-budget-rule with twoyear carry-over Japan Limited fiscal autonomy Defined by annual Local Government Fiscal Plan Administrative sanctions Norway Ex-ante operating deficits not allowed; carry-over of ex-post deficits for two years No restrictions Administrative sanctions Finland Balanced-budget constraint over the medium term No explicit restrictions, no guarantee No sanctions Netherlands Co-operative approach; balancebudget rule on accrual basis No restrictions Administrative sanctions Spain Balanced-budget constraint for all levels Golden rule Administrative sanctions Italy Domestic Stability Pact sets ceilings on primary deficit Golden rule Peer pressure and financial sanctions Irleand Limited fiscal autonomy; balanced-budget constraint Ministerial approval Administrative sanctions No sanctions United Kingdom Limited fiscal autonomy Ministerial approval n.a. France Operating deficits not allowed Golden rule Administrative sanctions Portugal n.a. n.a. n.a. Luxembourg Limited fiscal autonomy; operating deficits not allowed for municipalities Ministerial approval for loans above a threshold Administrative sanctions Greece Limited fiscal autonomy Ministerial approval n.a. Source: OECD, Economic Outlook, 74, 2/2003, p. 157–8 (adapted). But there is a difficulty to design the rules of subnational fiscal behaviour in a way that they induce the correct responses in each possible situation. The balanced-budget regulations in place in many countries seem to bear the danger of pro-cyclicality. This leads some national governments in times of need to adjust the expenditure possibility of sub-national units by additional or reduced grants and transfers. R. O. gets. It is typically the countries with a co-operative approach who use the peer pressure mechanism. However, peer pressure is generally combined with some type of sanction. Compliance with overall macroeconomic targets might, more often than not, mean that sub-national expenditure and borrowing must be constrained. But sometimes, for example, during a businesscycle downswing, the contrary might be desirable. CESifo DICE Report 1/2004 58