The document discusses the importance of fiscal equalization in Norway due to its heterogeneous municipal structure, where many municipalities are small and face significant differences in tax income and service responsibilities. It outlines the principles of fiscal equalization aimed at ensuring quality and equal public services across the country while allowing for local democratic governance. Recent developments show a decrease in the number of municipalities and highlight challenges related to revenue generation, particularly for smaller municipalities.

1. Fiscal equalisation
Experiences from Norway
Hilde Marie Skarvang
OECD Fiscal Network, December 2.-3. 2019

2. The Norwegian case – why is fiscal equalisaton important?
• A heterogenic municipal structure – but most municipalities are small
• Max./min. size: 200/680 000 – half of all municipalities <5 000
• All municipalities have the same extensive responsibilities
• Significant differences in the level of tax income generated
• Significant differences in geography, demography, social characteristics

3. Financing the local government sector
General
grants
32 %
Local taxes
40 %
Fees and
charges 14 %
Earmarked
grants 6 %
Central
government
transfers
Own-source
revenues
Fiscal equalisation
Revenue equalisation
Equalisation of
expenditure needs
Limited scope to
increase local tax
revenues:
Personal income tax,
net wealth tax (max.
tax rates)
Property tax
(voluntary tax,
restrictions on tax
rates, not subject to
equalisaton)
Natural resource tax

4. Principles of fiscal equalisation
• Fiscal equalisation
- Partial equalisation of local taxes
- Distribution of general grants with equalisation of expenditure needs
• Objectives:
- To ensure high quality public services
- To ensure an equal standard of public services in all parts of the country
- To ensure fiscal control for the central government
- To enable and strengthen local democracy

5. Recent developments
• System stability
• Structural reform – system not neutral to size
• Own-source revenues not subject to equalisation – increasingly
important to (smaller) municipalities?
• Hydro-power revenues
• Aquaculture revenues
• More limited scope to levy property tax
5

6. RESULT, so far…
Almost 1 out of
3 citizens lives
in a new
municipality
…into 47new municipalities119municipalites merge…
1. january 2020:
356municipalities
Fortsatt behov for at flere kommuner slår
seg sammen. Store regionale forskjeller.
17 % decrease in
number of
municipalities

7. Small changes in the overall structure Regional differences in number of mergers
1merger
Size by
number of
citizens
Number of
municipalities
2020
Share of all
municipalities
2020
<3 000 127 (-31) 36 % (-1)
3 000-5 000 49 (-21) 14 % (-2)
5 000-15 000 101 (-22) 28 % (-1)
>15 000 79 (+2) 22 % (+4)
Total 356 (-72) 100 %