Presentation on EU economic governance and fiscal decentralisation made at the 2nd CoR conference on sub-national public finances in Brussels on 24 June 2014, by Joaquim Oliveira-Martins, Head, Regional Policy Division, OECD. For more information see www.oecd.org/regional/regional-policy/.

1. EU economic governance and fiscal
decentralisation
Joaquim Oliveira Martins
Head, Regional Development Policy Division
OECD
Brussels, 24 June 2014

2. Subnational governments (SNGs) are key
economic actors in the OECD and the EU
39,9%
63,3%
50,0%
72,2%
33,2%
19,6%33,6%
51,7%
45,9%
65,8%
26,6%
15,7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Expenditure Staff
expenditure
Public
procurement
Direct
investment
Tax revenue Debt
OECD average Minimum Maximum European Union average
% of General Government - 2012

3. Weight of the subnational government expenditure
in GDP and Total Public expenditures
Australia*
Austria
Belgium
Canada**
Germany
Mexico* Spain
Switzerland*
United States*
Czech Rep.
Denmark
Estonia
Finland
France
Greece
Hungary
Iceland
Ireland Israel*
Italy
Japan*
Korea*
Luxembourg
Netherlands
New Zealand**
Norway
Poland
Portugal
Slovak Rep.
Slovenia
Sweden
Turkey*
United Kingdom
OECD33
EU27
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Subnational government expenditure as a % of GDP in 2012
Subnationalgovernmentexpenditureasa%ofpublicexpenditurein2012
* 2011 data ; ** : 2010 data

4. Role of Subnational Governments by types of
expenditures
26%
18%
14% 14%
12%
16%
20%
13%
12%
16%
20%
18%
0%
5%
10%
15%
20%
25%
30%
Education Health Economic
Affairs
General
Services
Social
protection
Other*
OECD (27 countries) EU27
OECD and EU (2011, % of expenditure)
*Other: Defence; Public order and safety; Housing and community amenities; Recreation, culture and religion; Environment.

5. The role of SNGs is particularly marked for Public
Investments
5
72%
66%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Canada
Belgium
UnitedStates
Germany
Switzerland
Japan
France
Finland
OECD33avg
Italy
Ireland
Austria
Australia
EU27
Netherlands
Mexico
Israel
Spain
Denmark
Slovenia
CzechRepublic
Korea
Portugal
Sweden
Norway
UnitedKingdom
SlovakRepublic
Iceland
Poland
NewZealand
Luxembourg
Hungary
Turkey
Estonia
Greece
Rest of public sector (central government and social security)
Subnational governments (States, regions and local governments)
Subnational direct investment as a % of public direct investment (2012)

6. Among subnational government expenditures,
Public investment was the most hit (EU, 2000-13)
In volume, base
year 2000 = 100
Change in 2013 (%)
+0,1%
-2,3%
-0,8%
+1,0%
-1,4%
+0,2%
100
105
110
115
120
125
130
135
140
145
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP Total expenditure
Direct investment Social benefits
Staff expenditure Intermediate consumption

7. Very strong reductions in subnational
investment in some countries
7
* Average annual growth
rate 2007-2012
** Average annual
growth rate 2007-2011
Ireland
Spain
Iceland
Turkey**
Portugal
Italy
Greece
EU
Estonia
United States*
Slovak Rep.
Austria
Czech Rep.
Hungary
Switzerland*
France
Japan*
Korea**
Poland
United Kingdom
Slovenia
Belgium
Mexico*
Germany
Netherlands
Australia*
Luxembourg
Norway
Denmark
Israel*
Canada*
Finland
Sweden
-25% -20% -15% -10% -5% 0% 5% 10%
Average annual growth rate 2007-2013 (% in real terms)

8. • Invest using an integrated strategy tailored to different places
• Adopt effective co-ordination instruments across levels of govt
• Co-ordinate across SNGs to invest at the relevant scale
Pillar 1
Co-ordinate across
levels of governments
and policies
• Assess upfront long term impacts and risks
• Encourage stakeholder involvement throughout investment cycle
• Mobilise private actors and financing institutions to diversify sources
of funding and strengthen capacities
• Reinforce the expertise of public officials & institutions
• Focus on results and promote learning from experience
Pillar 2
Strengthen capacities
and promote policy
learning at all levels of
government
• Develop a fiscal framework adapted to the objectives pursued
• Require sound and transparent financial management at all levels
• Promote transparency and strategic use of procurement
• Strive for quality and consistency in regulatory systems across
levels of government
Pillar 3
Ensure proper framework
conditions for public
investment at all levels of
government
8
A new OECD instrument: The Principles for Effective
Public Investment Across Levels of Government
This is the first OECD Instrument in the area of regional policy and multi-
level governance
This is the first OECD Instrument in the area of regional policy and multi-
level governance

9. The Governance system of SNGs:
a fragmented and evolving picture
Federations & quasi-federation
Unitary countries
38 960
4 160
360
573
78
2 489
1 766
2443 031310 8 185
36 828
8 222
437
114
74
11 638
446 311
320
254
338
3 196
2 935
2 363
2 434
605
420
2 875
6 267
103
106
211
226
OECD:
140 879 subnational governments in 2012:
• 136 346 municipal-level entities
• 4 007 intermediary-level entities
• 526 regional or State-level entities

10. 10
Large variation in average population and
land size across municipalities
13
17
17
17
24
29
32
36
37
50
52
62
87
96
102
126
200
220
266
266
274
299
406
440
440
601
612
798
900
1 057
1 392
1 552
2 192
2 408
4 025
6 000
0 1 000 2 000 3 000 4 000 5 000 6 000 7 000
Czech Republic
Slovak Republic
Switzerland
France
Luxembourg
Hungary
Germany
Austria
Italy
EU27
Belgium
Spain
Israel
Slovenia
Netherlands
Poland
Estonia
Japan
OECD
Turkey
United States
Portugal1
Greece
Denmark
Korea1
United Kingdom1
Ireland
Mexico
Norway
Finland
Iceland
Sweden
Chile
Canada
New-Zealand
Australia
Average municipal area, km²
1 680
1 735
1 850
3 140
3 305
3 590
4 320
4 605
5 670
5 690
5 905
7 170
7 305
8 240
8 815
9 115
9 665
11 725
15 545
16 915
18 855
25 180
31 050
32 935
34 050
34 885
38 960
40 085
41 125
44 780
50 440
56 180
64 550
74 170
155 775
220 285
0 50 000 100 000 150 000 200 000 250 000
Czech Republic
France
Slovak Republic
Hungary
Switzerland
Austria
Iceland
Luxembourg
EU27
Spain
Estonia
Germany
Italy
Canada
United States
OECD
Slovenia
Norway
Poland
Finland
Belgium
Turkey
Israel
Sweden
Portugal
Greece
Ireland
Australia
Netherlands
Mexico
Chile
Denmark
New-Zealand
Japan
United Kingdom
Korea
Average number of inhabitants per municipality

11. Regional governments vs. municipal
governments: a more contrasted picture
11
Germany
Mexico
Italy
France*
Spain
Japan
Poland
Netherlands
Chile Denmark
Austria Turkey Greece
Czech rep.
Slovak rep.
Hungary
Sweden New Zealand
Switzerland
Norway
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
5.000
5.500
0 10.000 20.000 30.000 40.000 50.000 60.000 70.000 80.000
Averageregionalgovernmentsize(thousandsofinhabitants)
Average municipal size (inhabitants)
France: without overseas regions ;
Belgium, United Kingdom, Canada, United States, Australia and Korea are not represented on this graph.
Average size of regional and municipal governments (population)

12. Size of regional government budget in 2012 (expenditure as a % of GDP)
Economic weight of regional governments
may not match their population size
12
1,0%
1,3%
1,5%
1,7%
2,2%
3,9%
6,0%
6,6%
9,7%
9,9%
11,3%
12,2%
13,4%
15,3%
18,1%
19,4%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Poland
France
Netherlands
Slovak Rep.
Norway*
Czech rep.*
Denmark
Sweden
Austria*
Mexico
Italy
Germany
Switzerland
Belgium
Spain
Canada
Austria* : excluding Vienna; Norway*: excluding Oslo
Czech republic*. estimated 2011 figures

13. Policy trend #1: Reforms for merging of
Municipalities
13
0
1000
2000
3000
4000
5000
6000
Austria(1950)
Sweden(1952,
1963)
Japan(1953,
1999)
Denmark(1970,
2007)
Finland(1976,
2010)
Belgium(1975)
NewZealand
(1989)
Lithuania(1994)
Greece(1997,
2011)
Israel(2002)
Turkey(2008-
2012)
Latvia(2009)
Number of municipalities before the reform Number of municipalities after the reform
Number of municipalities in 2012

14. Policy trend #2: A growing focus on
metropolitan governance
14
Average number of metropolitan governance bodies created or
reformed in OECD countries per decade
0
5
10
15
20
25
30
35
40
45
50
1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010

15. Policy trend #3: Fiscal autonomy and
partnerships across levels of government
Creation of new taxes
Tax collection
Leeway over tax rates
Leeway over tax bases
Legal power
Regulatory / administrative /
adaptation power
Scope of competences and
functions
Tax autonomy
index:
Own-source tax
revenue as a %
of total
revenues
The main components of fiscal
autonomy
0
2
4
6
8
10
Assets management
(financial, physical)
Tariffs & fees
(leaway)
Taxes
Grants and subsidies
(earmarked/general)
Borrowing
Budget management
Spending and investment
(norms & standards, etc.)
Human
resources
Local public service
delivery
Control : monitoring, audit,
evaluation, performance
assessment
Equalisation mechanisms

16. • OECD national accounts and Eurostat
• OECD (2013) « Regions at a Glance »
• OECD (2014) “Subnational government in OECD countries: key
data”
• “Investing Together: Working Effectively across Levels of
Government”, OECD Publishing (forthcoming December 2013)
• OECD Regional Outloook 2014 (forthcoming)
• http://www.oecd.org/gov/regional-policy/
• OECD Fiscal Network: : http://www.oecd.org/tax/federalism/
Thank you !
16