OECD Network on Fiscal Relations across Levels of Government, 16th Annual Meeting, 3-4 December 2020 – Virtual Meeting

1. FUNDING AND FINANCING OF
LOCAL GOVERNMENT PUBLIC
INVESTMENT
A framework with applications to five OECD countries
OECD Network on Fiscal Relations across Levels of Government 4 December, 2020

2. - Fill the gaps in the literature
- develop a framework to
analyse the key factors
affecting LG capacity to fund
and finance public investment
- apply it to five OECD
countries
Objective of the report
Selected case studies:
• Denmark;
• Finland;
• Ireland;
• The Netherlands;
• New Zealand.

3. Analytical framework for assessing the factors affecting
LG capacity to finance public investment
• Funding of public investment
• Fiscal discipline mechanisms
• Financial instruments
• Financial institutions
• Public financial management
(PFM) systems
• Multi-level governance (MLG)
framework
Capacity
of LGs to
finance PI
Revenue
mix Expenditure
autonomy
Donor
funding
Fiscal rules
Monitoring,
enforcement
Insolvency
Debt
PPPs,
other
Guaran-
tees
CG
lending
Funds
LGFAs
Budgeting
Strategic
planning
Administrative
capacity
Vertical
coordination
Horizontal
cooperation

4. Level of decentralisation across OECD countries
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
0
10
20
30
40
50
60
70
80
A: Expenditure,
% GG
B: Tax revenue,
% total tax revenue
C: Investment,
% of GG
D: Debt,
% of GG
Q1-Q3 Min Max Average
LG expenditure, investment and debt as a share of GG and LG tax revenues as a share of total tax revenues, 2018

5. • LG are provided with sufficient tax raising capacity and predictability in revenues
• Fiscal rules are clear with targets which do not change frequently
• Fiscal discipline monitoring is strong and enforcement mechanisms incorporate limited
central government discretion
• Projects and risks are pooled to exploit economies of scale and access preferential borrowing
(e.g. by setting up a LG funding agency)
• Individual loans are not implicitly or explicitly guaranteed by central government
• Available public investment funds have clearly defined application criteria and are
comprehensive (no sectoral fragmentation)
• The use of alternative financing models (e.g. PPPs) is justified by demonstrating better value
for money than traditional procurement and all the associated costs are disclosed (e.g.
guarantees, contingent liabilities)
Main drivers of effective local public investment (1/2)

6. • Budgeting practices and reporting is homogeneous across LGs and financial data are made
publicly available in open data formats
• Long-term strategies and medium-term investment plans are followed through (money
follows the project rather than the opposite)
• Administrative capacities and skills are continuously strengthened and expertise is pooled
across jurisdictions
• A single entity is empowered with the responsibility for vertical co-ordination and its roles
are clearly defined
• LG have incentives to engage in horizontal co-operation and have a platform for exchanging
about potential joint projects, public sector innovation and sharing of good practices
Main drivers of effective local public investment (2/2)

7. TO CONTACT THE AUTHORS:
Camila Vammalle: Camila.VAMMALLE@OECD.org
Indre Bambalaite: Indre.BAMBALAITE@OECD.org

8. THANK YOU
Hansjörg Blöchliger: HansJoerg.BLOECHLIGER@OECD.org