A sub-central government perspective on fiscal policy in a tight fiscal environment

Abstract

This chapter assesses the impact of the global financial crisis on sub-central governments’ finances and describes how the relationship between central and sub-central governments has evolved, from a strong support during the crisis, to requesting their efforts in the present phase of consolidation. The first section shows that the crisis and stimulus measures have increased the levels of sub-central government debts and exacerbated the disparities between strong and weak sub-central governments. The financial markets are now putting pressure both on central governments and on sub-central governments to reduce their levels of debt. The second section shows that a credible commitment on the part of sub-central governments is necessary to achieve fiscal consolidation and describes the measures being taken to achieve this. The third section explores the need for all levels of government to make the most of reduced public investment in a tight national fiscal context and presents some guiding principles how to do better with less.