FISCAL FEDERALISM DURING AND AFTER THE GREAT RECESSION Hansjörg Blöchliger Head, OECD Fiscal Federalism Network Prato, 2 October 2014.

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Presentation transcript:

FISCAL FEDERALISM DURING AND AFTER THE GREAT RECESSION Hansjörg Blöchliger Head, OECD Fiscal Federalism Network Prato, 2 October 2014

SNGs are recovering from the crisis… Source: Fiscal Federalism 2014

… and SNG debt levels are stabilising negative consequences for Source: Fiscal Federalism 2014

SNG debt is considerable in a few countries, mainly federal Source: Fiscal Federalism 2014

Spreads between low- and high-ranked SNG bonds have widened Source: OECD Revenue Statistics 2013

SNG taxes rose more than spending. Transfers declined slightly after the crisis

SNGs help stabilise general government debt Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 State-level government budget balance (change) ***0.73*** Local government budget balance (change) -0.41**-0.32*-0.19 Long-term interest rates (change) -0.14***-0.20***-0.13***-0.06***-0.09***-0.11*** Exchange rate (change) *** 0.10**0.02 Inflation (change) ** ***-0.07*** Strongly left-leaning government **-0.03*-0.02**-0.03*** Strongly right-leaning government * Observations LR-test of independent equations7.35***7.39***12.75***4.35**

Transfer cuts help general government to consolidate Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Debt stabilises at t+1 Debt stabilises at t+2 Debt stabilises at t+3 Central government transfer spending (change in % of GDP) * State/regional government transfer spending (change in % of GDP) *** Growth rate8.78***5.29***4.78**8.90*** *** Long-term interest rates (change)-0.07***-0.08***-0.11***-0.13***-0.22***-0.14*** Exchange rate (change)0.1242** Inflation (change)-0.07***-0.08***-0.07***-0.09**-0.08**-0.01*** Sub-central budget balance (change) *** Strongly left-leaning government-0.02**-0.03***-0.02** ** Strongly right-leaning government * ** Observations LR-test of independent equations4.56** **5.89**7.86***11.19***

The strength of fiscal rules varies across countries Composite indicator, 2012

The relationship between rules and outcomes is not straightforward

Fiscal constitutions have kept changing over the past 100 years