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A Sub-national Perspective on Financing Investment for Growth II - Creating Fiscal Space for Public Investment: The Role of Institutions

Author

Listed:
  • Camila Vammalle

    (OECD)

  • Rudiger Ahrend

    (OECD)

  • Claudia Hulbert
Abstract
Sub-national governments (SNGs) are key players for public investment in OECD countries, responsible for nearly two-thirds of it. At the same time, both the well-being of the population and economic performance depend on an adequate provision of public services, which require public facilities and thus public investment. Ensuring that sub-national governments command the resources for necessary public investment is hence important. While in the immediate, the fiscal space of a SNG for public investment is basically determined by its current fiscal capacities, in a longer-term perspective the evolution of fiscal space comes to depend increasingly on the institutional context. This includes the national framework of fiscal relations across levels of government, the nature and characteristics of SNGs’ revenue sources and spending responsibilities, SNGs resilience to crises, and their structural ability to borrow. This paper explores the institutional ability of SNGs to influence their fiscal space for public investment. In this context, it also analyses the main challenges to be faced by SNG finances in the decades to come, as well as recent reforms implemented by SNGs to tackle these specific issues. Les gouvernements infranationaux, responsables de deux tiers de l’investissement public dans les pays de l’OCDE, jouent un rôle crucial en matière d’investissement. Le bien-être de la population et la performance économique reposent en partie sur une provision adéquate de services publics, et réclament des infrastructures et équipements efficaces, financés à travers l’investissement public. S’assurer que les gouvernements infranationaux ont à leur disposition des ressources suffisantes pour investir constitue donc un enjeu de taille. À court terme, leur marge de manoeuvre budgétaire disponible pour l’investissement est déterminée, en grande part, par leur capacité financière immédiate. Cependant dans une perspective de long terme, l’évolution de cette marge de manoeuvre repose davantage sur le contexte institutionnel – relations budgétaires entre niveaux de gouvernement, nature et caractéristiques des sources de revenus et de dépenses infranationales, résilience des gouvernements infranationaux aux crises, capacité structurelle à emprunter. Cet article analyse la capacité institutionnelle d’un gouvernement infranational à influencer sa marge de manoeuvre budgétaire disponible pour l’investissement. Pour ce faire, il étudie les principaux défis que devraient rencontrer les gouvernements infranationaux dans les décennies à venir, ainsi que les réformes introduites récemment pour y répondre.

Suggested Citation

  • Camila Vammalle & Rudiger Ahrend & Claudia Hulbert, 2014. "A Sub-national Perspective on Financing Investment for Growth II - Creating Fiscal Space for Public Investment: The Role of Institutions," OECD Regional Development Working Papers 2014/6, OECD Publishing.
    • Handle: RePEc:oec:govaab:2014/6-en
    DOI: 10.1787/5jz3zvxc53bt-en
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    Citations

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    Cited by:

    1. Andrés Rodríguez-Pose & Roberto Ganau, 2022. "Institutions and the productivity challenge for European regions," Journal of Economic Geography, Oxford University Press, vol. 22(1), pages 1-25.
    2. Aldona Standar & Agnieszka Kozera, 2019. "The Role of Local Finance in Overcoming Socioeconomic Inequalities in Polish Rural Areas," Sustainability, MDPI, vol. 11(20), pages 1-28, October.
    3. Mr. Olumuyiwa S Adedeji & Mr. Calixte Ahokpossi & Claudio Battiati & Mrs. Mai Farid, 2016. "A Probabilistic Approach to Fiscal Space and Prudent Debt Level: Application to Low-Income Developing Countries," IMF Working Papers 2016/163, International Monetary Fund.
    4. Desislava Zheleva Kalcheva, 2017. "Interrelationship Between Public Investments and Economic Developement in the EU Counties," Business & Management Compass, University of Economics Varna, issue 3, pages 281-290.
    5. Agnieszka Kozera & Aldona Standar & Łukasz Satoła, 2020. "Managing Rural Areas in the Context of the Growing Debt of Polish Local Government Units," Agriculture, MDPI, vol. 10(9), pages 1-25, August.
    6. Agnieszka Kozera, 2021. "Investment Activity of Large Cities - Regional Centres in Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 220-247.

    More about this item

    Keywords

    fiscal relations across levels of government; fiscal space; gouvernements infra-nationaux; institutions; institutions; investissement public; marge de manoeuvre budgétaire; public investment; public services; relations budgétaires entre niveaux de gouvernement; services publics; sub-national government;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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