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State Budget Support to Local Governments

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State Budget Support to Local Governments GENERAL DISTRIBUTION OCDE/GD(94)116 SUPPORT FOR IMPROVEMENT IN GOVERNANCE AND MANAGEMENT IN CENTRAL AND EASTERN EUROPEAN COUNTRIES (SIGMA) A JOINT INITIATIVE OF THE OECD/CCET AND EC/PHARE FINANCED MAINLY BY EC/PHARE STATE BUDGET SUPPORT TO LOCAL GOVERNMENTS ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Paris 1994 COMPLETE DOCUMENT AVAILABLE ON OLIS IN ITS ORIGINAL FORMAT STATE BUDGET SUPPORT TO LOCAL GOVERNMENTS A Report for the SIGMA Programme Edited by G. MARCOU 3 Copyright PHARE/OECD, 1994 Applications for permission to reproduce or translate all or part of this material should be made to: Head of Publication Service, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France. 4 Table of Contents FOREWORD ............................................................ 9 STATE BUDGET SUPPORT TO LOCAL GOVERNMENT IN EASTERN AND WESTERN EUROPE ...................................... 11 Introduction ............................................................. 12 Transfer payments in local finance of SIGMA countries: a diagnosis ...................... 15 The local government structure .............................................. 15 Municipal level established ................................................ 17 Uncertainty at intermediate level ............................................ 18 Central government / local government relationships evolving ....................... 19 A comparative outline of local finance ......................................... 21 Main macro-economic values in local finance ................................... 21 Local government revenues ............................................... 26 Transfer payments ....................................................... 28 Conclusions ............................................................ 32 Two models developing .................................................. 32 Five policy issues ...................................................... 33 Transfer payments to local government in four West European countries ................... 36 Basic features of local government in France, Portugal, the United Kingdom and Sweden ..... 36 Municipal level ........................................................ 37 Intermediate level ...................................................... 38 Central government / local government relationships .............................. 38 Comparative outline of local finance .......................................... 39 Main macro-economic values in local finance ................................... 39 Local government revenues ............................................... 41 Transfer payments ....................................................... 43 Equalisation: Two models, two techniques .................................... 44 a) The assessment of needs .............................................. 44 b) Equalisation of tax base disparities ....................................... 46 Central government / local government relations; financial aspects of devolution and co-operation 48 a) Compensation for the transfer of new tasks ................................. 48 b) Co-operation between levels of government ................................. 49 Conclusion .............................................................. 50 Sources ............................................................... 51 FRANCE ............................................................... 55 An estimate of central government grants ....................................... 56 Basic data ............................................................. 56 Public finance ......................................................... 56 Local government ...................................................... 59 5 The grant system ........................................................ 61 An overview .......................................................... 61 Grants for current expenditure .............................................. 62 Investment grants ...................................................... 65 An appraisal of central government grants ....................................... 66 The impact of central government grants on local government finance ................... 67 Funding the tasks assigned to local government ................................. 67 Equalisation .......................................................... 69 Central - local relationships ................................................. 70 Local autonomy ....................................................... 70 Control on local government finance ......................................... 72 SOURCES ............................................................ 73 PORTUGAL ............................................................. 75 The system of local government ............................................. 76 Structure ............................................................. 76 Functions ............................................................ 76 An overview of the local finance system ........................................ 77 The grant system ........................................................ 78 General purpose grant ................................................... 78 Specific grants ........................................................ 79 Local tax revenues ....................................................... 80 Control of local government finance ........................................... 81 Local government borrowings ............................................... 81 BASIC DATA .......................................................... 82 TABLES I to VI ........................................................ 83 SWEDEN ............................................................... 89 Local government in Sweden ................................................ 90 Historical background ................................................... 90 The structure of the local government sector .................................... 90 The legal framework .................................................... 91 The tasks of local governments ............................................. 92 Municipalities ........................................................ 92 County councils ...................................................... 93 Organisation and political structure .......................................... 94 Local government economy ................................................. 94 Local government revenue and expenditure .................................... 94 Local government employment ............................................. 96 Local government taxation ................................................. 97 Tax bases and tax rates .................................................. 97 Tax administration ...................................................... 99 Changes affecting the local tax base ......................................... 99 State budget support to local governments ...................................... 100 State grants to local governments .......................................... 100 The tax equalisation system .............................................. 102 Special grants ........................................................ 102 Reformation of the State grants to local governments 1993 ........................ 103 6 The new State grant system for municipalities .................................. 105 Revenue equalisation ................................................... 105 Structural cost equalisation ............................................... 106 Supplement for population reduction ........................................ 107 Provisional rules for the new State grant ...................................... 107 Problems connected to the new grant system ................................... 107 The grant system for county councils ......................................... 108 TABLESI&II......................................................... 109 THE UNITED KINGDOM ................................................... 111 The system of local government ............................................. 112 Structure ............................................................. 112 England and Wales ..................................................... 112 Scotland ............................................................. 112 Size and Population ..................................................... 113 Functions ............................................................ 113 Central-local financial relations .............................................. 113 National policy ........................................................ 113 Taxation ............................................................. 113 Expenditure .......................................................... 114 Intergovernmental Transfers ............................................... 114 The current grant system ................................................... 115 Revenue support grant ................................................... 115 Specific grants ........................................................ 118 Capital Finance ......................................................... 118 General ............................................................. 118 Basic Credit Approvals .................................................. 118 Supplementary credit approvals ............................................. 119 Loan finance .......................................................... 119 Capital Grants ........................................................
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