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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.

Suggested Citation

  • Jens Lundsgaard, 2005. "Ageing, Welfare Serviced and Municipalities in Finland," OECD Economics Department Working Papers 428, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:428-en
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    File URL: http://dx.doi.org/10.1787/614657702086
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    References listed on IDEAS

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    1. Takero Doi & Takeo Hoshi, 2003. "Paying for the FILP," NBER Chapters,in: Structural Impediments to Growth in Japan, pages 37-70 National Bureau of Economic Research, Inc.
    2. James M. Poterba & Kim Rueben, 1999. "State Fiscal Institutions and the U.S. Municipal Bond Market," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 181-208 National Bureau of Economic Research, Inc.
    3. Andrea Bassanini & Stefano Scarpetta & Philip Hemmings, 2001. "Economic Growth: The Role of Policies and Institutions: Panel Data. Evidence from OECD Countries," OECD Economics Department Working Papers 283, OECD Publishing.
    4. Naoyuki Yoshino & Eisuke Sakakibara, 2002. "The Current State of the Japanese Economy and Remedies," Asian Economic Papers, MIT Press, vol. 1(2), pages 110-126.
    5. Giuseppe Nicoletti & Steve Golub & Dana Hajkova & Daniel Mirza & Kwang-Yeol Yoo, 2003. "Policies and International Integration: Influences on Trade and Foreign Direct Investment," OECD Economics Department Working Papers 359, OECD Publishing.
    6. Doi, Takero & Ihori, Toshihiro, 2002. "Fiscal Reconstruction and Local Interest Groups in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(4), pages 492-511, December.
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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, University of Freiburg, Research Center for Generational Contracts (FZG).

    More about this item

    Keywords

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

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

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