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Regional decentralisation-and-regional-convergence-oecd-september-2016

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Across the OECD, GDP per capita is converging. In contrast, regional disparities – or differences in GDP per capita across jurisdictions – are rising, mainly as a result of widening productivity differences. Fiscal decentralisation could help reduce them again.

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Regional decentralisation-and-regional-convergence-oecd-september-2016

  1. 1. REVENUE DECENTRALISATION AND REGIONAL CONVERGENCE Hansjörg Blöchliger Head of the OECD Fiscal Federalism Network www.oecd.org/economy/public-finance/does-fiscal-decentralisation-foster-regional-convergence.htm
  2. 2. Countries are converging, but regions are diverging
  3. 3. Productivity differences are the main drivers of differences in regional GDP per capita 𝐺𝐷𝑃 𝑝𝑜𝑝 = 𝐺𝐷𝑃 𝑒𝑚𝑝 ∙ 𝑒𝑚𝑝 𝑊𝐴𝑃 ∙ 𝑊𝐴𝑃 𝑝𝑜𝑝 Activity rate Productivity Employment rate Note: data for 2013; coefficient of variation of each component
  4. 4. Increases disparities Less endowed regions will suffer – no level playing field for competition “Race to the bottom” Corruption at the local level Decreases disparities Political economy/public choice Incentive for growth-enhancing policies Larger potential of endogenous growth in poor regions Can fiscal decentralisation underpin regional convergence and reduce disparities? Theory does not provide clear guidance
  5. 5. OECD: Revenue decentralisation reduces disparities, but vertical fiscal imbalance (or transfers) increase them
  6. 6. Lagging regions benefit more than leading regions from tax decentralisation Growth regression • 2 sub-samples: top 25 percentile of output distribution and bottom 25 percentile of output distribution • Impact on annual growth rate of GDP pc Tax decentralisation Positive and significant impact only on annual bottom 25th percentile Fiscal authority Positive and significant impact only on annual bottom 25th percentile
  7. 7. 1. Revenue decentralisation reduces regional GDP disparities, while the vertical fiscal imbalance (or transfers) increases them. 2. As such, regions should fund spending with own revenue. 3. Revenue decentralisation favours catch-up of lagging regions. “Race-to-bottom” hypothesis not confirmed. Main conclusions
  8. 8. More Information… OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 8 www.oecd.org/economy/public-finance/does-fiscal-decentralisation-foster-regional-convergence.htm

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