Gisela Färber / Nils Otter (Eds.)
Spatial Aspects of Federative Systems
Speyerer Forschungsberichte 242
Gisela Färber / Nils Otter (Eds.)
SPATIAL ASPECTS OF FEDERATIVE SYSTEMS
International Workshop from February 23rd – February 25th 2005
DEUTSCHES FORSCHUNGSINSTITUT FÜR ÖFFENTLICHE VERWALTUNG SPEYER
2005
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Preface
This issue includes papers which were presented at the international workshop “Spatial Aspects of Federative Systems” held in cooperation with the Acad- emy for Spatial Research and Planning (ARL, Hannover) at the Research In- stitute for Public Administration, Speyer, Federal Republic of Germany, from February, 23.rd-25.th 2005. The literature on intergovernmental fiscal relations is still being rapidly expanding in recent years, in line with a worldwide trend toward decentraliza- tion. Problems related to decentralized government and the development of federal systems will therefore continue to be at the centre of the policy debate in most countries. This book presents a collection of essays which emphasizes the spatial aspects of federative systems, a topic that until the rise of the “New Economic Geography” had been relatively neglected in the fiscal federalism literature. There is considerable heterogeneity among countries in terms of geography, demography and of course, the way of organizing and financing decentralized jurisdictions. However, a number of the problems being faced are remarkably similar and a reading of the papers will reveal some important common aspects. Consequently, the papers presented here are dealing with topics such as spatial externalities and public goods, challenges and problems of agglomerations, the incidence of public budgets, the concept of competitive federalism, the politics of urban change and metropolitan government or de- mography and its consequences for political and fiscal federalism. The workshop was designed to explore current and forthcoming research issues in federalism and spatial economics, and the participants discussed new aspects of spatial development and policy strategies. Given its coverage and focus, the workshop has proven especially useful to policymakers and acade- mic scholars, who wish to know about future trends and problems in the evo- lution of federative systems and to draw relevant lessons for necessary re- forms from these experiences. VI
We are very grateful to the institutions which have supported the work- shop in particular the Academy for Spatial Research and Planning, Hannover, and the German Research Institute for Public Administration for financial support. We also appreciate the help of all the people in the back-office bur- dened by the work for the participants` welfare. In conclusion, we wish to ex- press our deep gratitude to all those who participated in this workshop.
Gisela Färber, Deutsche Hochschule für Verwaltungswissenschaften Speyer
Nils Otter, Deutsches Forschungsinstitut für öffentliche Verwaltung Speyer
September, 2005 VII
Contents
Spatial Challenges of Federal Systems – A German or an International Prob- lem? René L. Frey ...... 1
The Spatial Development of Federative Systems in Europe. Economic, Political and Ideological Aspects Silvio Goglio ...... 19
Competitive Federalism – Understandings and Institutional Settings Thomas Lenk/Karolina Kaiser ...... 33
Comment François Vaillancourt ...... 67
The Interregional Incidence of Public Budgets in Federations: Measurement Issues, Evidence from Canada, and Policy Relevance François Vaillancourt/Richard M. Bird ...... 73
Comment Giancarlo Pola ...... 113
Governing the mega-region: governance and networks across London and the South East of England Peter John/Adam Tickell/Steven Musson ...... 117
Comment Kira Baranova ...... 139
Fiscal Equivalence and the Increasing Dispersion/Divergence of Public Goods Claims – Do we need a new Interpretation? Lars Feld ...... 147
Comment Lorenz Blume ...... 181
Demographic Change and Federal Systems Christian Leuprecht/Nicolette O'Conner ...... 185 Helmut Seitz/Dirk Freigang/Gerhard Kempkes ...... 223
Round table: Problems of demographic change ...... 253 VIII
1
Spatial Challenges of Federative Systems: A German or an International Problem?
René L. Frey Professor of economics emeritus, University of Basel, Switzerland
1. Introduction
The organizers of our conference on the «Spatial Aspects of Federative Sys- tems» have asked me to treat three points in my keynote speech: 1. I shall summarize a report published last week by the Academy for Spa- tial Research and Planning ARL and edited by Gisela Färber: «Das föderative System in Deutschland: Bestandsaufnahme, Reformbedarf und Handlungsempfehlungen aus raumwissenschaftlicher Sicht», in Eng- lish: «The Federative System in Germany. Survey, Reform Needs and Recommendations from a Spatial Point of View». 2. I shall evaluate the findings of this report, add further perspectives of the subject treated and answer the question mentioned in the subtitle of my contribution: Are the spatial challenges of federal systems, as presented in the report, a specific German or an international problem? 3. I shall give a scope of the other sessions of our conference: the patterns of spatial development, the governance in metropolitan areas, the institu- tional settings of competitive federalism, the interregional incidence of public budgets, the concept of fiscal equivalence and the demographic changes in federative systems.
I was not involved in the preparation of the stimulating ARL report. Coming from Switzerland and not being fully acquainted with the German political and federative system, I do not want to give wise recommendations to our German friends.
2. ARL Report «The Federative System in Germany»
There were two main reasons for appointing a working group by ARL. Firstly, the German federative system was and is criticized for not being effi- 2 cient. It has to be reformed. Secondly, so far the spatial aspects have been ne- glected in all these discussions. The ARL report consists of four main parts: The first part discusses the spatially relevant goals of federative systems. The second part analyses the spatial incidence of public expenditure and taxes, the intergovernmental transfer system, and the demographic changes. In the third part, some aspects of the spatial effects of decentralization in the public sector are treated, especially the regional effects of the poli- cies with regard to universities and research, regional development, health, housing and agriculture. The fourth part presents some recommendations for reforming the fed- erative system of Germany. They should serve as a contribution to the work of the Stoiber-Müntefering commission «Modernising the federa- tive system in Germany», a commission which has proved a failure by December 2004.
If I have correctly understood the main results and messages, the ARL report can be summarized as follows – without attempting to attain completeness: A decentralization of competences to the Bundesländer and communities (municipalities) is necessary. It must be limited to regional and local public goods, however. Increasing the responsibility of the subnational jurisdictions on the ex- penditure side is not enough. It must be accompanied by a reform of the German tax system. The subnational jurisdictions must have a greater autonomy. In the last decades, the taxes have completely lost their func- tion as price for the regionally and locally provided public services. The working group fears that an undifferentiated decentralization would make it even more difficult to reach equivalence of living conditions, as postulated by the German constitution, and to promote regional eco- nomic growth in all types of regions. There is not enough information about the regional incidence of the budgets. In order to control the regional effects of the federal budget its incidence should be periodically analyzed. The actual intergovernmental transfer system (Finanzausgleich) does not efficiently reduce the interregional disparities. It significantly destroys growth incentives. Most rich Bundesländer do not have an interest to in- crease taxable income. The poor Bundesländer, too, have not enough in- 3
centives to promote their economy, because they would not be able to significantly improve their financial situation. The German fiscal policy does not adequately take account of the demo- graphic changes of the next decades, especially ageing and decline of the population.
Table 1: Regional Disparities in OECD Countries (2001)
Share of most Share of 5 most Interregional co- important region important re- efficient of varia- (% of gions, (% of tion national GDP) national GDP) (GDP per capita)
Ireland 39.0 64.1 23.8 Finland 37.3 60.2 22.6 Denmark 32.8 51.8 27.3 Norway 30.0 53.1 33.0 France 29.5 39.5 45.2
Austria 29.1 51.8 30.6 Sweden 25.2 63.0 10.9 Netherlands 22.3 55.3 11.3 Switzerland 21.0 58.7 14.0 Italy 20.0 57.0 26.6
Belgium 20.0 46.6 23.1 Canada 18.5 45.1 14.1 Great Britain 17.2 26.1 45.9 USA 10.2 26.6 20.0 Germany 9.0 35.0 26.3
OECD average 25.4 50.2 31.0
Source: Blöchliger 2005, 115. 4
3. Evaluation of the ARL Report
There are many different notions of federalism. In order to prevent misunder- standings, I want to make clear what I understand by this term. Maybe my definition is typically Swiss, or American as in the mid 19th century Switzer- land copied the American federative system. For me federalism is character- ized by the following elements: Multi-level construction of public sector Separation of tasks according to the subsidiarity principle Autonomy of the lower level jurisdictions Competition among the jurisdictions in public services and taxes Cohesion as a task of the federal government Participation of the subnational jurisdictions in the decision-making process at the federal level.
Such a construction of the public sector has certain advantages. But it has dis- advantages, too. The main advantages of a federative system are efficiency and innovation because competition puts a pressure on the jurisdictions to perform better than their neighbors do. Voting by feet helps to reveal the preferences of the citi- zens and firms. They have not only the possibility to control government by «voice» (democratic voting) but also by «exit» (change of domicile). Bench- marking government performance is much easier. Last but not least, the prin- cipal-agent problem is less severe because the command-and-control chains are shorter. Three problems often occur: difficulties to reach the optimal size and to benefit from economies of scale, distortions because of spillover effects and regional disparities because not all jurisdictions have the same capabilities to succeed with the interjurisdictional competition. In order to guarantee that the advantages outweigh the disadvantages cer- tain conditions must be met. The distribution of the public tasks among the different levels of gov- ernment must be appropriate: local public goods to the communities, re- gional public goods to the Bundesländer, provinces etc., national public goods to the national government, and international public goods to su- pranational institutions. Of course, in the real world it is not always clear where the borderline between the four public good categories is to be drawn. 5