Intergovernmental fiscal relations and fiscal coordination during the crisis

Abstract

This chapter documents some key facts on the timing, synchronicity, cyclicality, contribution and composition of central and sub-national governments’ fiscal responses following the global financial crisis among advanced economies. We find evidence that post-crisis fiscal responses across government levels have become more synchronised, suggesting coordinated efforts across government levels to implement fiscal expansions. We then develop and test some hypotheses on the role that fiscal autonomy, transfer dependency and sub-national fiscal rules may have played to foster fiscal coordination in the post-crisis era. Preliminary econometric results show that fiscal coordination improves with the degree of spending autonomy. There is no evidence, however, that additional revenue autonomy, transfer dependency or a smartening of sub-national fiscal rules contributed to improvements in fiscal coordination in the post-crisis years.