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Ageing, Welfare Serviced and Municipalities in Finland

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  • Jens Lundsgaard

Abstract

With population ageing setting in sooner and more forcefully than in other OECD countries, Finland needs to reorder its fiscal priorities so as to ensure fiscal sustainability. That will require considerable reform as public spending currently expands vigorously. While GDP growth has slowed from the exceptionally rapid pace of the late 1990s, public consumption has continued to grow fast, as new obligations by central government and popular demand led municipalities to expand service provision. After some consolidation in 2003, local government spending has accelerated again and the deficit has widened to ¾ per cent of GDP in 2004 for the municipalities considered as a whole – despite still larger transfers from central government. At the same time, the tax burden is high, especially on labour. Ensuring the sustainability of public finances over the long term, while maintaining the essential parts of the welfare society will only be possible by i) raising the effectiveness of public spending, ii) reforming the financing of municipalities to encourage better control of spending and limit future rises in municipal income taxation and iii) rebalancing the mix between public and private provision and funding of services. This working paper discusses ways in which progress could be made on such a policy agenda. It relates to the 2004 OECD Economic Survey of Finland (www.oecd.org/eco/surveys/finland) updating the Survey’s analysis by incorporating data for 2004 and recent developments. Vieillissement, services sociaux et collectiviés locales en Finlande Avec une population qui vieillit plus rapidement et plus fortement que dans les autres pays de l’OCDE, la Finlande se trouve dans l’obligation d’ajuster ses priorités budgétaires afin d’en assurer la viabilité à plus long terme. Il faudra pour cela des réformes considérables, car l’expansion des dépenses publiques est actuellement très forte. Bien que la croissance du PIB se soit ralentie par rapport à son rythme exceptionnellement rapide du début des années 90, la consommation publique a continué à progresser rapidement, les nouvelles obligations imposées par l’administration centrale et par la pression des usagers ayant amené les municipalités à accroître leur offre de services publics. Après une certaine stabilisation en 2003, les dépenses des collectivités locales se sont à nouveau accélérées et le déficit a été porté à ¾ pour cent du PIB en 2004 pour les municipalités considérées dans leur ensemble – malgré le versement de transferts encore plus importants par l’administration centrale. Quant à la charge fiscale, elle reste élevée, surtout celle qui pèse sur la main-d’œuvre. Il ne sera possible d’assurer la stabilisation à long terme des finances publiques tout en maintenant les éléments essentiels de la protection sociale qu’à condition i) d’améliorer l’efficacité des dépenses publiques, ii) de réformer le financement des communes pour les inciter à mieux contrôler leurs dépenses et limiter les augmentations futures de l’impôt municipal sur le revenu et iii) de rééquilibrer le partage entre le secteur public et le secteur privé dans l’offre et dans le financement des services publics. Ce document de travail examine les moyens de progresser dans la réalisation de ce programme. Il se réfère à l’Etude économique de 2004 de l’OCDE sur la Finlande (www.oecd.org/eco/etudes/finlande) et met à jour les analyses effectuées dans cette étude en y insérant des données pour 2004 et en prenant en compte l’évolution récente.

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File URL: http://dx.doi.org/10.1787/614657702086
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 428.

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Date of creation: 10 May 2005
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Handle: RePEc:oec:ecoaaa:428-en

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Keywords: fiscal policy; public sector efficiency; pensions; vouchers; contracting out; property tax; Finland; ageing; fiscal federalism; income tax; welfare services; local government; retraites; bons d'achat; efficacité du secteur public; politique budgétaire; collectivités locales; externalisation; impôt immobilier; services sociaux; vieillissement; fédéralisme budgétaire; Finlande; impôt sur le revenu;

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Cited by:
  1. Hagist, Christian & Vatter, Johannes, 2009. "Measuring fiscal sustainability on the municipal level: A German case study," FZG Discussion Papers 35, Research Center for Generational Contracts (FZG), University of Freiburg.

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