Local Public Finance in Europe Country Reports René Geißler, Gerhard Hammerschmid, Christian Raffer (eds.) Local Public Finance in Europe Contents Preface 5 List of Authors 6 Indicators and Data 7 1 | Austria René Geißler, Falk Ebinger 9 2 | Belgium Christian Raffer 17 3 | Bulgaria Christian Raffer 28 4 | Czech Republic Andrés Ponce 39 5 | Denmark Friederike-Sophie Niemann 51 6 | England René Geißler, Kai Wegrich 61 7 | Estonia Christian Raffer, Nastasha Valesco 70 8 | Finland Friederike-Sophie Niemann 81 9 | France Quentin Millet 91 9 | Germany René Geißler 102 11 | Greece Maria-Artemis Kolliniati 111 12 | Hungary Christian Raffer 122 13 | Ireland René Geißler 133 3 Local Public Finance in Europe 14 | Italy Christian Raffer, Emanuele Padovani 141 15 | Netherlands Christian Raffer 154 16 | Poland René Geißler 165 17 | Portugal René Geißler 173 18 | Slovenia Iztok Rakar, Maja Klun 181 19 | Spain Nastasha Velasco 192 20 | Sweden Christian Raffer, Nastasha Valesco 202 21 | Canada Christian Person 213 22 | Michigan (US) René Geißler 226 23 | Switzerland Christian Person 236 Annex 249 Imprint 251 4 Local Public Finance in Europe Preface There is widespread consensus amongst academics and Therefore, the country reports, which this book presents, practitioners: local governments do matter. They deliver a outline the basic features of local fiscal regulations, like fiscal variety of essential public services for their inhabitants. Their rules, organization and procedures of monitoring compliance political systems are closest to citizens. At no other level of with this regulatory framework as well as enforcement the political-administrative system, political processes are mechanisms in case of rule violations. so approachable and ostensive, the barriers of an immediate participation of citizens so low. No other political level does The recent financial crisis of 2008/2009 has been a severe offer comparable options of getting directly involved with external shock for public finances. It did show dramatic and politics and thereby influencing and shaping someone’s own ongoing consequences in many countries around the world. real life-world context straightforwardly and effectively Although plenty of research points to the effects of the crisis according to own preferences. Moreover, municipalities on the national level, comparably little do we know about its function as schools of democracy and build a framework for impact on local governments and their fiscal stance (noticeable identity and social cohesion. Those functions are valuable for exceptions are Bailey & Chapain 2011; Steccolini, Jones & the state itself. Consequently, there is no lack of commitments Saliterer 2017).1 The following country reports show that some by state officials in strengthening local government. At the states have effectively cushioned their local levels against the core of local governments’ ability to fulfil the abovementioned negative consequences of the economic downturn; in other functions is local public finance. It is the cornerstone of any states the crisis displayed direct or indirect effects on budgets, workable local government. Without a sound financial footing, regulatory regimes, but also in unexpected fields. The financial municipal governments are not able to meet the requirements crisis did change the central-local-relationships in different requested by their citizens and the state in general. ways. In contrast to the widespread conviction about local We deepen those matters in the way of single country reports. governments’ relevance in public service provision, there In all, we cover 22 countries, 19 of them being members of is little research about local finance from an international European Union. This selection refers to the idea of showing comparative perspective. This holds true in particular for a wide variety of settings rather than to give an exhaustive two foci: the impact of the great financial crisis of 2008/2009 picture of EU-members. on the state of local public finances and the regulation of municipal budgets by higher-level governments. Each country report follows the same outline and gives answers to the following questions: (1) What is the administrative The regulation of local government finance is a multi-level structure of the country at whole and of the local level in governance task that any country needs to address. Typically, particular? (2) By which sources local governments are funded? local governments deliver essential public services, but (3) For which functions do they spend their financial means? (4) are not financially self-sufficient. Therefore, higher levels How is the current fiscal status of the local government level of government do not only provide local governments with in the respective country? (5) Which repercussions did the financial means via intergovernmental fiscal grants, but also financial crisis unfold on local public finance? (6) How do states need to supervise local fiscal behaviour in order to prevent supervise and regulate local budgets? The first three questions budgetary crisis as well as to ensure a sustained service are rather common themes of research. Nonetheless, they provision. Higher levels of government hence established are not only alone relevant by themselves and worth being regimes of fiscal governance, intended to monitor local budgets repeated periodically, but they are also necessary framework and keep local finances under control. By this, those regulatory conditions to light the picture of financial crisis impacts on and regimes create remarkable budget constraints and foster fiscal state regulation of local public finance. adaptation and consolidation pressures, especially in case of emerging budget deficits and rising debt levels. Nonetheless, those regimes have hardly been analysed, yet. One can easily 1 Bailey, David; Chapain, Caroline (2011) (edts.): The Recession and Beyond. call this a blind spot of local government research. Local and Regional Responses to the downturn. London & New York: Routledge. Steccolini, Ileana; Jones, Martin; Saliterer, Iris (2017) (edts.): Governmental financial resilience. International perspectives on how local governments face austerity. Bingley: Emeral Publishing Limited. 5 Local Public Finance in Europe List of Authors In general, all country reports built on literature, be it Falk Ebinger academic, practice or public reports, listed at the end. Another Assistant Professor, common pillar is the use of EUROSTAT Government Finance Institute for Public Management and Governance at Statistics data, supplemented by data from the OECD fiscal Vienna University of Economics and Business decentralization database, feeding in a comprehensive set of figures on financial indicators2. These information were René Geißler complemented by expertise from national experts, either Senior Expert, Local Government Program, practitioners or academics in the field of (local) public finance Bertelsmann Stiftung or local government to validate and enrich those findings. Gerhard Hammerschmid This book is written for academics and practitioners. It seeks Professor of Public Finance and Management, to provide a general overview on each national system of Hertie School, Berlin’s University of Governance local public finance, showing structural lines, rather than to perform an in-depth-look in every country. The latter approach Maja Klun would easily have overstressed the capacities of any research Professor, Faculty of Administration, endeavour. We follow an explorative design focusing on basic University of Ljubljana features, presenting a fundament for comparative analysis, and a reference book on local public finance benefitting all those, Maria-Artemis Kolliniati who wish to gain a fresh and basic understanding. As this sample PhD Candidate, of countries will show, there is huge variance on all features of University of Heidelberg local public finance. Kind of basic description and exploration is the starting point for any further deepening research. Not Quentin Millet at least we want to foster international discussion and mutual Research Assistant, understanding. Hertie School, Berlin’s University of Governance This book is a joint endeavour by Bertelsmann Stiftung Friederike-Sophie Niemann and Hertie School of Governance. Both institutions share a Project Manager, Local Government Program, common belief of the relevance of local governments in general Bertelsmann Stiftung and of sound public finances in particular. Both institutions built a group of researchers supplemented by a large number Emanuele Padovani of national experts. We want to thank all the ones involved. Associate Professor of Business Administration, University of Bologna René Geißler, Christian Person Gerhard Hammerschmid and PostDoc Researcher, Institute of Political Sciences, Christian Raffer Technical University of Darmstadt Andrés Ponce Research Assistant, Hertie School, Berlin’s University of Governance Christian Raffer Research Associate, 2 As for the Non-EU member countries Canada and Switzerland, no Hertie School, Berlin’s University of Governance EUROSTAT data was available, we had to use alternative data sources. In these two cases, we rely on data from the OECD and national statistical offices, whereby we tried as hard as possible to find financial data comparable to the EUROSTAT data. 6 Local Public Finance in Europe Indicators and Data Iztok Rakar Next to extended desk research and expert interviews, a further Assistant Professor, Faculty of Economics, pillar of