Abstract
ABSTRACT There is a growing empirical literature on the effects of the global financial and economic crisis on intergovernmental relations. This paper contributes to this literature by focusing on conventional budgetary aggregates and institutional indicators of subnational authority in policy-making and fiscal–financial management. The empirical analysis is carried out for a large set of advanced and emerging-market/developing economies between 1990 and 2015, and it shows that the crisis has been associated with an increase in the subnational shares of general government spending and revenue. The findings for subnational authority over policy and fiscal–financial management are more nuanced and suggest that increases in government indebtedness (spending) since the crisis have been associated with greater (weaker) subnational authority. It is possible that the need to deliver debt reductions through medium-term fiscal consolidation calls for greater intergovernmental coordination, which enhances the bargaining power of the subnational jurisdictions to broaden their prerogatives in fiscal matters and influence national policy-making.
Highlights
The global financial and economic crisis had a marked impact on the public finances, especially in the advanced economies
Subnational governments already account for about 60 percent of general government investment on average world-wide according to the OECD, and they accounted for the bulk of the public works programmes that were put in place in the aftermath of the crisis
Trade openness and economic development continue to be negatively associated with decentralisation, the effects are stronger in the sub-sample of advanced economies in the case of trade openness and in the sub-sample of emergingmarket economies and developing countries in the case of economic development
Summary
The global financial and economic crisis had a marked impact on the public finances, especially in the advanced economies. The post-crisis surge in subnational spending was subsequently reversed as activity began to recover, stimulus was withdrawn, and fiscal consolidation programmes were put in place to restore the longerterm sustainability of the public finances In addition to these budgetary effects, intergovernmental relations were impacted by the crisis in several countries as a result of wideranging institutional reforms to fiscal-financial management. Subnational governments used this enhanced bargaining power to enhance their autonomy in policymaking and fiscal-financial matters Against this background, the objective of this paper is to revisit the empirical evidence of the effects of the crisis on intergovernmental fiscal relations.
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