Local Government Finance in OECD Countries

Abstract

In most OECD countries in the last quarter Century there has been a growing mismatch between the functional competencies and fiscal responsibility of local government. Continued population growth, especially in urban areas, has seen a steady increase in demand for municipal services. While measures of legislative and administrative decentralisation to meet these demands have been put in place (reforms which have tended to broaden the economic and social functions of local and regional authorities), they have not been matched by a decentralisation of financial control (OECD 1997). Where financial decentralisation has occurred, it is generally the intermediate governments that have benefitted, often in the name of ‘new federalism’ (Owens and Norregard 1991). In unitary countries without intermediate level governments such as New Zealand and the United Kingdom, the problem of fiscal autonomy for local authorities has not been given a high priority even by reforming governments’ (Martin 1991). The twin problems of fiscal dependency on central government, and inadequate growth in local government own-source revenue are common to many OECD countries, despite wide variations in intergovernmental financial arrangements. This chapter offers a comparative analysis of local government finance in selected OECD countries. Its aims are threefold: first, to trace the dimensions of local government finance in a comparative way; second, to establish patterns and trends across time; and third, to consider the problem of local fiscal autonomy in the context of local government reform.