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Sub-central Governments and the Economic Crisis: Impact and Policy Responses

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  • Hansjörg Blöchliger
  • Claire Charbit
  • José Maria Pinero Campos
  • Camila Vammalle

Abstract

The world is recovering from the worst crisis since the Great Depression, leaving a strong and lasting impact on Member countries’ public finances. This paper analyses how sub-central governments (SCG) are affected and how fiscal policy has reacted in the first months after the outbreak of the crisis. In general and in line with earlier downturns, SCG’s public finance appear to be less affected than central governments. However, SCGs suffer from a scissors effect of higher spending and lower tax revenue, specially those with a volatile tax base and large social welfare responsibilities. While some SCGs were conducting their own stimulus plans, others cut expenditures and raised taxes, potentially undermining national government’s recovery programmes. Most national governments are helping SCGs to cope with the crisis, by disbursing additional grants and supporting investment programmes, by easing centrally-imposed fiscal rules, lifting borrowing constraints or by temporarily raising the sub-central tax share. The crisis also showed the need for better coordination in intergovernmental fiscal relations, both for more macroeconomic coherence and for efficiency in public service delivery. Several countries are creating or reinvigorating their institutions for managing relations across levels of government. Gouvernements infra-nationaux et la crise : Effets et politiques Le monde se relève lentement de la crise la plus profonde depuis la Grande Dépression, mais les séquelles de celle-ci sur les finances publiques des pays Membres seront durables. Cet article analyse l’impact de la crise sur les collectivités territoriales (CT) et comment les politiques budgétaires ont été adaptées pour répondre à la crise pendant les tout premiers mois. En règle générale, comme dans les récessions antérieures, les finances publiques infranationales semblent moins touchées que celles des gouvernements centraux. Cependant, les CT sont confrontées à un effet « ciseaux », où leurs dépenses augmentent alors que leurs recettes fiscales diminuent. Cet effet est d’autant plus important que l’assiette fiscale des CT est volatile, et que leurs responsabilités en termes de protection sociale sont importantes. Certaines CT ont mis en oeuvre leurs propres plans de relance, alors que d’autres au contraire ont réduit leurs dépenses et augmenté les impôts, compromettant ainsi l’efficacité des plans de relance nationaux. La plupart des gouvernements nationaux ont soutenu les CT, en leur attribuant des transferts exceptionnels, en participant à leurs programmes d’investissement, en relâchant les règles budgétaires ainsi que les plafonds d’endettement fixés auparavant, ou en augmentant temporairement la part des CT dans le partage des recettes fiscales. Cette crise a révélé le besoin d’améliorer la coordination budgétaire entre niveaux de gouvernement, tant dans un souci de cohérence macroéconomique que d’efficacité dans la provision de services publics. Dans ce but, plusieurs pays ont créé ou renforcé leurs institutions chargées de gérer les relations entre niveaux de gouvernement.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 752.

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Date of creation: 18 Feb 2010
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Handle: RePEc:oec:ecoaaa:752-en

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Keywords: sub-central governments; fiscal federalism; economic crisis; recession; recovery; sub-national fiscal policy; politique budgétaire au niveau infranational; fédéralisme fiscal; collectivités territoriales; crise économique; récession; relance;

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