15th Annual Meeting of the Network on Fiscal Relations Across Levels of Government, OECD, 2-3 December 2019

1. Twenty Years of Tax Autonomy Across
Levels of Government:
Measurement and Application
OECD Working Paper of Fiscal Federalism No. 29
Sean Dougherty, OECD
Michelle Harding, OECD
Andrew Reschovsky, University of Wisconsin-Madison

2. Outline of Working Paper 29
 The importance of tax autonomy for sub-central
governments
 How tax autonomy is measured
 How have tax autonomy results been used
 Trends in sub-central government tax revenues
 Results of 2017 tax autonomy survey (w/ 2014 data)
 Changes in tax autonomy 2002 to 2014
 A composite measure of local government taxing power
 Local government tax autonomy in the U.S.
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3. Outline of Presentation
 The importance of tax autonomy for sub-central
governments
 How tax autonomy is measured
 How have tax autonomy results been used
 Trends in sub-central government tax revenues
 Results of 2017 tax autonomy survey
 Changes in tax autonomy 2002 to 2014
 A composite measure of local government taxing power
 Local government tax autonomy in the U.S.
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4. How have the Tax Autonomy Measures Been Used?
 Providing information to OECD countries
 Used directly in a number of published studies on fiscal
federalism and fiscal decentralization
 Topics:
 Impacts on economic growth
 Efficiency of sub-central governments
 Size of the public sector
 Rate of public investment
 Regional inequities
 Educational outcomes
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5. OECD Taxonomy of Taxing Power
a1
a2
- The recipient SCG sets the tax rate and any tax reliefs without needing to consult a higher-level
government.
- The recipient SCG sets the rate and any reliefs after consulting a higher-level government.
b1
b2
- The recipient SCG sets the tax rate, and a higher-level government does not set upper or lower
limits on the rate chosen.
- The recipient SCG sets the tax rate, and a higher-level government does sets upper and/or lower
limits on the rate chosen.
c - The recipient SCG sets tax reliefs
d1
d2
d3
d4
- There is a tax-sharing arrangement in which the SCGs determine the revenue split.
- There is a tax-sharing arrangement in which the revenue split can be changed only with the
consent of SCGs.
- There is a tax-sharing arrangement in which the revenue split is determined in legislation, and
where it may be changed unilaterally by a higher-level government, but less frequently than once a
year.
- There is a tax-sharing arrangement in which the revenue split is determined annually by a higher-
level government.
e - Other cases in which the central government sets the rate and base of the SCG tax.
f - None of the above categories a, b, c, d or e applies.
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6. % of State Gov’t Revenue by Tax Autonomy Code
Unweighted Average of OECD Countries, 2014
a1, 70.0%
b1, 2.2%
b2, 5.5%
d2, 14.8%
d3, 0.8%
e,
5.0%
f, 1.8%
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7. % of Local Gov’t Revenue by Tax Autonomy Code
Unweighted Average of OECD Countries, 2014
a1, 10.2%
a2, 2.9%
b1, 20.8%
b2, 41.0%
d2, 1.7%
d3, 8.5%
d4, 3.0%
e, 7.8%
f, 4.1%
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8. Local Government Partial Tax Autonomy
Composite Measure, OECD Countries, 2014
Australia
Austria
Canada
Chile
Denmark
Estonia
Finland
France
Germany
Greece
Iceland
Israel
Italy
Japan
Korea
Latvia
New Zealand
Poland
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Partiallyautonomouslocaltaxesasa%oftotaltaxes
Local government taxes as a% of total taxes 8

9. Local Government Full Tax Autonomy
Composite Measure, OECD Countries, 2014
9
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Finland
France
Germany
Hungary Iceland
Italy
Japan
Korea Latvia
Mexico
Netherlands
New Zealand
NorwayPoland
Slovenia
Spain
Sweden
SwitzerlandTurkey
United States
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Fullyautonomouslocaltaxesasa%oftotaltaxes
Local government taxes as a% of total taxes.

10. Local Government Tax Autonomy in the U.S.
 OECD tax autonomy surveys have never included local
governments in the U.S.
 The reason is the complexity of the U.S. fiscal system
 Local governments powers must be granted by state
governments
 Thus, U.S. has 50 separate systems of state-local finance
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11. Local Government Tax Revenue by Source in the U.S.
Calendar Year 2014
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Property Tax
(72.0%)
General Sales
Tax (12.6%)
Individual
Income Tax
(4.8%)
Corporate
Income Tax
(1.3%)
Other Taxes on
Property (1.0%)
SpecificSales
Taxes (4.8%)
License Taxes
(2.8%)Other Taxes
(0.7%)

12. Major Taxes Used by Municipal Governments
in the U.S.
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13. Local Government Tax Revenue as a Percentage
of State & Local Government Tax Revenue,2014
13
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
NorthDakota
Vermont
Arkansas
Delaware
Minnesota
Hawaii
WestVirginia
Mississippi
Kentucky
Idaho
NewMexico
Indiana
Montana
Michigan
Alaska
Oklahoma
California
NorthCarolina
Alabama
Nevada
Massachusetts
Wyoming
Wisconsin
Connecticut
Utah
Iowa
Washington
Maine
Arizona
Oregon
U.S.Average
Tennessee
Kansas
SouthCarolina
Pennsylvania
Maryland
Illinois
Ohio
Georgia
RhodeIsland
Florida
Virginia
Nebraska
Louisiana
Missouri
NewJersey
SouthDakota
Texas
Colorado
NewYork
NewHampshire

14. Local Government Tax Autonomy in the U.S.
 Measuring tax autonomy required:
 For each state, assigning tax autonomy codes to each of as
many as 25 different local government taxes
 Using a new code, b3, to account for state-imposed limits on
annual increases in property tax revenues (levies)
 Summing results across all taxes in each state and across the
50 states and the District of Columbia
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15. Local Gov’t Tax Autonomy—U.S. & OECD Average
OECD United Other OECD
Codes States Member Countries
Full a1 7.1% 10.2%
Restricted a2 11.8% 2.9%
Full b1 13.3% 20.8%
Restricted b2 28.4% 41.0%
Revenue Restrictions b3 38.1% _
Discretion on reliefs c 0.4% 0.0%
Revenue split set by
local gov'ts d1 0.0% 0.0%
Revenue split set with
local gov't consent d2 0.0% 1.7%
Revenue split set by
states, pluriannual d3 0.3% 8.5%
Revenue split set by
states, annually d4 0.0% 3.0%
Rates and reliefs set by states
governments e 0.5% 7.8%
Other f 0.0% 4.1%
Total 100.0% 100.0%
Tax sharing arrangements
Percent of Local Gov't Tax Revenue
Taxonomy of Taxing Power
Discretion on rates and reliefs
Discretion on rates
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16. Tax Autonomy of U.S. Property Tax, 2014
Percent of Local Gov't
OECD Property Tax
Codes Revenue
Full a1 6.5%
Restricted a2 -
Full b1 18.0%
Restricted b2 22.1%
Revenue Restrictions b3 52.9%
Discretion on reliefs c 0.5%
Revenue split set by
local gov'ts d1 -
Revenue split set with
local gov't consent d2 -
Revenue split set by
states, pluriannual d3 -
Revenue split set by
states, annually d4 -
Rates and reliefs set by states
governments e -
Other f -
Total 100.0%
Tax sharing arrangements
Taxonomy of Taxing Power
Discretion on rates and reliefs
Discretion on rates
16

17. 17

18. Share of Revenue by Gov’t Sector & Tax Category
As a Percentage of GDP, 2016, Federal/Regional Countries
18

19. Share of Revenue by Gov’t Sector & Tax Category
As a Percentage of GDP, 2016, Unitary Countries
19

20. Tax Autonomy in OECD Countries
20
Federal Countries Unitary Countries
0
10
20
30
40
50
Austria
Mexico
Belgium
Australia
Spain
OECDFederalAvg
Germany
UnitedStates
Switzerland
Canada
Chile
Estonia
CzechRepublic
Greece
SlovakRepublic
Ireland
Luxembourg
Netherlands
UnitedKingdom
Hungary
NewZealand
Portugal
Israel
Japan
Turkey
Slovenia
OECDUnitaryAvg
Poland
France
Norway
Italy
Latvia
Korea
Finland
Iceland
Denmark
Sweden
%oftotaltaxation
A. The recipient SCG sets the tax rate and any tax reliefs B. The recipient SCG sets the tax rate
C. The recipient SCG sets tax reliefs D. There is a tax-sharing arrangement
E. Other cases F. None of the above categories

21. Changes in Tax Autonomy for Unitary Countries
2002 to 2024
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