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How do Sub-Central Government react to cuts in grants received from Central Governments Evidence from a Panel of 15 OECD Countries

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  • Julia Darby
  • V. Anton Muscatelli
  • Graeme Roy

Abstract

Cross-country evidence on sub-central governments’ responses to cuts in grants received from central government shows the typical response is to adjust expenditure rather than offset cuts by raising ‘own’ revenues. Spending cuts are focused on the wage bill and, disproportionately, on capital expenditure. Even where countries have greater flexibility to offset the centrally imposed cuts, through a high degree of expenditure decentralisation, tax and borrowing autonomy, they tend not to exercise these powers. So, centrally imposed cuts result in expenditure restraint at the sub-central level, but the adjustment appears to suffer from short-termism, given the disproportionate focus on capital spending.

Suggested Citation

  • Julia Darby & V. Anton Muscatelli & Graeme Roy, "undated". "How do Sub-Central Government react to cuts in grants received from Central Governments Evidence from a Panel of 15 OECD Countries," Working Papers 2005_18, Business School - Economics, University of Glasgow, revised Jun 2005.
    • Handle: RePEc:gla:glaewp:2005_18
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    File URL: http://www.gla.ac.uk/media/media_22209_en.pdf
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    References listed on IDEAS

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    1. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(4), pages 695-729, October.
    2. Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 111-155.
    3. Mr. Guiseppe Pisauro, 2001. "Intergovernmental Relations and Fiscal Discipline: Between Commons and Soft Budget Constraints," IMF Working Papers 2001/065, International Monetary Fund.
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    Cited by:

    1. Hughes Hallett, Andrew & Scott, Drew, 2010. "Scotland: A New Fiscal Settlement," SIRE Discussion Papers 2010-23, Scottish Institute for Research in Economics (SIRE).
    2. Graeme Roy, 2006. "Grants Versus Tax Sharing: the Extent of Central Government Control," ERSA conference papers ersa06p74, European Regional Science Association.
    3. Kopańska Agnieszka, 2018. "The determinants of local public spending on culture," Central European Economic Journal, Sciendo, vol. 5(52), pages 67-80, January.
    4. John Thornton, 2007. "On The Cyclicality Of South African Fiscal Policy," South African Journal of Economics, Economic Society of South Africa, vol. 75(2), pages 258-264, June.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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