The influence of decentralized taxes and intergovernmental grants on local spending volatility

Abstract

The influence of decentralized taxes and intergovernmental grants on local spending volatility. Regional Studies. This paper studies what affects the volatility of sub-central public spending in 20 Organisation for Economic Co-operation and Development (OECD) countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the other hand, the volatility of local tax revenues -mainly that of property taxes -exerts the opposite effect. These findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability. Allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure. L'impact de la décentralisation fiscale et de l'octroi des subventions intergouvernementales sur la volatilité des dépenses locales. Regional Studies. Cet article étudie ce qui influe sur la volatilité des dépenses publiques au niveau régional dans 20 pays de l'Organisation de coopération et de développement économique (OCDE). À partir des données pour la période allant de 1972 jusqu'à 2007, les résultats laissent voir une corrélation positive entre la volatilité des subventions intergouvernementales provenant des niveaux supérieurs d'administration avec la volatilité des dépenses locales. De l'autre côté, la volatilité des recettes fiscales locales -principalement les impôts fonciers -produit l'effet contraire. Ces résultats laissent supposer que la dépendance des administrations locales des subventions plutôt que des recettes fiscales propres a un effet négatif sur la stabilité de leurs dépenses. Leur permettre de prélever de façon autonome des impôts qui reposent sur des assiettes fiscales adaptables fournit des incitations au lissage de leurs dépenses. MOTS-CLÉS RESUMENLa influencia de los impuestos descentralizados y las subvenciones intergubernamentales en la volatilidad del gasto local. Regional Studies. En este artículo estudiamos qué factores influyen en la volatilidad del gasto público subcentral en 20 países de la Organización para la Cooperación y el Desarrollo Económico (OCDE). Según los resultados de datos de 1972 a 2007, la volatilidad de las subvenciones intergubernamentales de niveles superiores está positivamente asociada a la volatilidad del gasto local. Por otra parte, la volatilidad de los ingresos fiscales locales -principalmente de impuestos inmobiliarios-ejerce el efecto contrario. Estos resultados indican que si los Gobiernos locales confíen más en las subvenciones que en sus propios ingresos fiscales se produce un efecto negativo en la estabilidad de sus gastos. Si se permite que recauden impuestos autónomamente y cuenten con bases impositivas receptivas se crean incentivos para amortiguar sus gastos. PALABRAS CLAVESvolatilidad del gasto local; ingresos locales; impuestos inmobiliarios; subvenciones intergubernamentales JEL E62, H71, H77, R50 HISTORY

The Role of Revenue Volatility in Local Expenditure Volatility: A Comparison of Tokyo Metropolitan Local Governments

“…This result does not support the common pool theory, being inconsistent with the findings of Sacchi and Salotti (2017). Specifically, the volatility of public spending is associated with an increase of 19.3 per cent for an additional one standard deviation in volatility of local taxes, reflecting the critical role of special ward local tax, rather than the consumption tax and other taxes, in financing expenditures.…”

“…The positive relationship between the volatility of various kinds of taxes and that of local spending seems to fit with the findings of Sacchi and Salotti (2017). In terms of positive and statistically significant associations, special wards are associated with local taxes, subsidies, other revenues and local bonds, while cities are associated with consumption tax, other taxes and other revenues.…”

“…Sacchi and Salotti (2017) have investigated the influence of local taxes (income tax, property tax and sales tax) and grants on local spending volatility in twenty OECD countries. Sacchi and Salotti (2017) have investigated the influence of local taxes (income tax, property tax and sales tax) and grants on local spending volatility in twenty OECD countries.…”

“…Expenditure volatility is defined as the standard deviation of the annual growth rate of local spending for a given fiscal year (Staley, 2015;. For instance, Sacchi and Salotti (2017) argue that local spending volatility probably impedes the health of local economies. For instance, Sacchi and Salotti (2017) argue that local spending volatility probably impedes the health of local economies.…”

Fiscal decentralisation and economic growth: Is there a relationship?

“…Fiscal decentralisation may affect regional inequality. Research works focused on regional inequality or regional income disparties (Akai & Hosio 2009, Song, 2013Sacchi & Salotti 2014;Kyriacou et al 2017); -Public sector size. Choice of cociety is analysed focusing on the size of public sector (Cassette & Paty 2010;Baskaran 2011;Cantarero & Perez 2012;Asword et al 2013;Liberati & Sacchi 2013;Silvia & Maleševic 2014;Sijabat 2016).…”