Workshop on “Decentralisation: trends, perspectives and issues at the threshold of EU enlargement” Copenhagen, October 10-11, 2002 Fiscal Design across Levels of Government: EU Applicant States and EU Member States By Jeffrey Owens Head Centre for Tax Policy & Administration OECD

Slide no. 2 Main Topics n I. Accession: opportunities & challenges n II. Fiscal decentralisation: main findings of the OECD- CTPA Surveys n III. Some general conclusions and perspectives

Slide no. 3 Current and Prospective EU Members

Slide no. 4 GDP per head

Slide no. 5 Key Indicators

Slide no. 6 I. Accession: opportunities & challenges n Accession will fundamentally change the nature of the European Union: –Frontiers will move to the East –The new Union will be confronted with a greater economic diversity –The experience of Germany suggests this will be an expensive and difficult integration

Slide no. 7 I. Accession: opportunities & challenges n But it will fulfill the vision of the founder of the Community: –to build a truly integrated Union –with markets and skills that can match the United States –and with the economic and political weight to make its voice heard on the global stage n Realising this vision is the business of all levels of government

Slide no. 8 What are the new opportunities? n Continuing the process of promoting local democracy n drawing upon the experience of EU Countries that have long histories of decentralised government n Tapping into a wider pool of experimentation n Accessing resources available in Brussels n Helping the expanded community to stay in touch with citizens

Slide no. 9 What are the new challenges? n Meeting the Stability Pact requirements n Meeting the State Aid Rules n Financing implementation of EU Directives n Central government squeezed between higher & lower levels n Making sure the voice of local government is heard in Brussels

Slide no. 10 II Main findings n Current approaches to sub-national government within the EU –Federal approach (Austria, Germany, Belgium) –Tradition of relatively strong sub-national government (Denmark, Finland, Sweden) –Tradition of relatively weak sub-national government (Greece, Ireland, Portugal) –Intermediate approach (France, Italy, Luxembourg, Netherlands, Spain, UK)

Slide no. 11 Current approaches to sub-national government in 10 Applicant Countries n Unitary approach n Four countries with genuine regional level (Czech Republic, Latvia, Poland, Slovak Republic) n Only two countries with two tiers of local government (Latvia, Poland)

Slide no. 12 Distribution of municipalities by size range

Slide no. 13 Decentralisation profiles Sub-national expenditure levels (% of GDP)

Slide no. 14 Decentralisation profiles Sub-national revenue levels

Slide no. 15 The allocation of responsibilities (sub-national spending by function as a percentage of total sub- national spending. Mean values)

Slide no. 16 Composition of sub-national revenues

Slide no. 17 The choice of sub-national taxes

Slide no. 18 Local tax autonomy

Slide no. 19 Free revenues and tied revenues

Slide no. 20 III Some general conclusions n Problem of fragmentation; too many; too small n Total government spending in relation to GDP is 40% in applicant States (45% in EU), but the applicants decentralise much less (7% of GDP against 16%) n Inverse relation between degree of decentralisation and importance of tax revenue as source of sub-national finance n Autonomy over sub-national taxes: overall lower in Applicant States n Institutional framework for central/local relations in the applicant States: emerging systems of negotiations; still many countries have not established standard procedures (e.g. on “bailouts”)

Slide no. 21 What are the issues that Applicant States will face? n The balance between national fiscal targets and sub-national fiscal discretion –How fiscal decentralization may be coordinated with macroeconomic stability? –Can stabilisation agreements be developed between different levels of government? n What possible institutional framework for dialogue between EU and sub-national governments?

Slide no. 22 Further perspectives n How to strengthen ties between sub-national government in the expanded Union n Need to reexamine the role of intermediate government n Need to share experiences and identification of “best practices” both within and outside of EU n Need to develop reliable internationally comparable statistics n The OECD Forum on Fiscal Relations across Levels of Government