To what extent does the central government ensure that tasks delegated to subnational self-governments are adequately funded?

The central government enables subnational self-governments to fulfill all their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
Canadian provinces deliver key public services, notably healthcare and education. Their share of government spending has risen dramatically over recent decades and now accounts for roughly 78%, compared to an OECD average of 32% (2016 data).

Canada’s federal government enables provinces to fulfill nearly all of their tasks adequately. The federal government transfers funds earmarked for healthcare through the Canada Health Transfer (CHT) and for education, social assistance, and child services through the Canada Social Transfer (CST). In addition, Canada has an Equalization program, which provides payments to provinces whose fiscal capacity falls under the national average in order to bring these provinces to that average. The CHT is the object of almost constant debate. Population aging and the pandemic have put tremendous long-term pressures on provincial healthcare systems. Provincial Premiers have pressed the federal government to cover 35% of all healthcare costs. The federal contribution is currently 22%.
Béland, Daniel, André Lecours, Gregory Marchildon, Haizhen Mou and Rose Olfert, Fiscal Federalism and Equalization Policy in Canada. Political and Economic Dimensions (Toronto: University of Toronto Press, 2017).
New Zealand
New Zealand is one of the most centralized jurisdictions in the OECD. More than 90% of government workers are employed by central government organizations, and almost all citizen-facing public services – including policing, fire services, education and health – are central government activities. Almost all local regulation is undertaken by an agent of central government, with little locally initiated regulation. In addition to their relatively narrow task profile, local governments are not permitted to tap into other commonly used sources of subnational revenue such as sales and/or income taxes. Local governments therefore raise a relatively large proportion of revenue from rates (taxes on real-estate holdings and charges). They have full discretion to set rates, subject to a general balanced budget requirement. Other revenue sources include user charges, such as vehicle fuel charges (since 2018), and fees. Local government officials have been lobbying central government for the right to raise revenue from additional sources, including road tolls. To date, their lobbying has been largely unsuccessful. There are no block grants from central to local government, but the central government contributes funding to specific local government functions, in particular transportation as well as road construction and maintenance.

In April 2021, the minister of local government created an assessment program called Review into the Future for Local Government. This is looking broadly at the system of local democracy and governance, including the functions, roles and structures
of local government; its commitment to the Treaty of Waitangi, the relationships between local government, central government, iwi (tribes), Māori, businesses and communities; and whether current funding arrangements are sustainable and equitable. However, the government will not be bound by the recommendations of this review, and it is not due to report to the government until mid-2023.
The New Zealand Productivity Commission 2018. Local government funding and financingIssues paper -November 2018.
In Switzerland, cantons and municipalities levy most of the country’s tax revenues. They determine local tax rates and decide how tax revenues will be distributed. Between 2004 and 2007, Switzerland passed a rather successful reform of its financial federalism, which has now taken effect. The basic idea was to establish a clear division of tasks between the federation and cantons as well as create transparency with regard to the flow of resources between the federal state and cantons. In this reform, the basic principle of fiscal equivalence was strengthened. This means that communes, cantons and the federation each are responsible for the funding of their own tasks, and for the balance of their own budgets. The fiscal equalization scheme has been retained, as it is necessary to reduce certain geographical, economic and social disparities, but the danger of providing badly aligned incentives through earmarked subsidies is eliminated through the use of grants. Funds thus continue to flow vertically (from the federal state to the cantons and vice versa) as well as horizontally (between communes and cantons). Nonetheless, it remains to be seen whether the new fiscal equalization scheme will help cantons that have serious problems in fulfilling their tasks or in meeting their goals due to their small size, lack of resources or other reasons. In any case, there is a divide between those cantons that pay more and those receiving payments.
The central government enables subnational governments to fulfill most of their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
Under Austria’s federal system, individual states (Länder) are constitutionally weak as compared with individual states in other federal systems. Yet politically, the states enjoy significant power due to the principle of federal or indirect administration and the federal structure of all major parties.

The Austrian constitution stipulates that tasks delegated to regional or municipal governments must be adequately funded, although this does not always entail 100% national funding. This principle is in most cases effectively implemented, with some exceptions on the municipal level. Debates are ongoing over allowing the nine states to raise taxes independently. However, some states oppose such a reform and seem satisfied to be financed by federal authorities, with federal funding decided by a negotiated compromise between the federal government (Bund) and the states.
Danish municipalities account for 50% of the country’s total tax spending but raise only about 30% of total tax revenue via municipal taxes. The difference is made up of funding from the state (bloktilskud). In addition, there is an equalization arrangement that reallocates funds from richer to poorer municipalities. There are annual negotiations with both the municipalities and regions about the financial framework agreement. Since municipalities act independently – though coordinated via their organization (Kommunernes Landsforbund) – municipal budget decisions have not always been consistent with the overall targets set by the Ministry of Finance. This implied for some years that expenditure growth exceeded targets. The Budget Law, which went into effect in 2014, stipulates tight control overs spending that include municipalities being potentially subject to financial sanctions. The sanctions have both an individual and collective element. If the sum of expenditures exceeds the agreed upon target, state funds will be reduced by an equivalent amount. Sixty percent of this reduction is levied on those municipalities that have exceeded expenditure targets and 40% is borne by all municipalities (the amount is distributed according to population size). The new system has been very effective, and municipalities have been well within targets in recent years. Since 2002, municipalities have participated in a so-called tax freeze that prevents taxes (e.g., income and building sites) from being increased. If one municipality increases one tax, this needs to be matched by a decrease in another municipality.

Many municipalities face a very tight financial situation and have had to reconsider the use of their resources with regard to core activities, such as child- and old-age care, and education. The current Social Democratic government has responded to this situation by increasing transfers to municipalities and regions for welfare and education so that local authorities can meet public expectations.
Jørgen Grønnegård Christiansen et al., Politik og forvaltning, 4. udg., 2017.

Andersen, T.M., J. Bentzen, S. E. Hougaard Jensen, V. smith and N. Westergaard-Nielsen, The Danish Economy in a global perspective, Copenhagen: DJØF Publishing, 2017.

Finansministeriet, Velfærd først. Finanslovforslaget 2020, Oktober 2019.. (accessed 18 October 2019).
Municipal governments have a right to assess taxes, collecting more than twice as much as the central government in income taxes. A government grant system additionally enables local governments to continue to provide public services even when experiencing a funding gap. In essence, a portion of locally collected taxes is put into a common pool, from which transfers are made to financially weak local governments. The central government establishes strict standards and service-provision requirements intended to cover all citizens. However, local governments are tasked with providing these services, which means that some municipalities are unable to meet the standards without increasing taxes. Given that local government units differ greatly in size and resources, they are in unequal positions in terms of capacity and performance efficiency. A large-scale reform of municipalities and services, started in 2006 has led to a considerable reduction in the number of municipalities. Among other goals, the reform aims to secure sufficient financing and an efficient provision of services across the country. The social and healthcare reform will create 21 new public entities (“regions”) which will take over the responsibility of organizing social services and healthcare in 2023.
The delegation of tasks from the national to the subnational level without commensurate funding has been a sore point of German fiscal federalism. For instance, municipalities suffer under the weight of increasing costs of welfare programs. However, a number of adjustments over the last years have substantially rejuvenated municipalities and states with the federal level increasingly assuming responsibility for the costs of social programs (e.g., for the costs of accommodation and living for the recipients of basic income support).

With respect to the future of the fiscal equalization system, an important compromise regarding the new system (in effect since 2020) was achieved in October 2016. This involves the Länder receiving higher shares of VAT revenues and replacing the currently horizontally structured system (in which wealthier states transfer funds to poorer states) with a system of exclusively vertical equalization payments (from the federal to the state level).

Also, when municipalities were hit hard by plummeting tax revenues during the pandemic, the federal level stepped in by providing generous compensation for shortfalls in municipal revenue.
The issue of grant-based funding has been a constant source of conflict between the local and central government levels. Meanwhile, the division of responsibilities between the central government and local governments has changed, but not radically. In 1996, full responsibility for primary education was transferred from the central government to local governments. In general, this transfer of responsibilities has been achieved without imposing a heavy financial burden on local governments. However, some of the smallest municipalities have experienced fiscal difficulties as a result of these transfers, and have either been forced to amalgamate with others or cooperate on service provision with neighboring municipalities. Full responsibility for services for disabled individuals was transferred to local governments in 2010 and took effect in January 2011, without conflicts concerning funding arrangements arising between the central government and local governments. Further transfers of responsibility have been planned – though without any dates set, including responsibility for elderly care. Negotiations on the transfer of elderly care have been repeatedly postponed due to disagreements over funding arrangements between central and local governments. The negotiating and preparation committee with representatives from state and local levels has in fact had no formal meeting since August 2013 (
Eythórsson, Grétar Thór (2017), “Bigger and stronger together. How Icelandic municipalities solve their lack of capacity and scale economy,” in Teles, Filipe and Swianiewicz, Pawel (Eds.), Inter-Municipal Cooperation in Europe Institutions and Governance. Palgrave MacMillan. DOI: 10.1007/978-3-319-62819-6.

Eythórsson, Grétar Thór (2012), “Efling íslenska sveitarstjórnarstigsins: Áherslur, hugmyndir og aðgerðir,” in Icelandic Review of Politics and Administration, Vol. 8, No. 2. Accessed 4 February 2022.
Since 2018, the Ministry of the Interior has overseen 102 municipalities in Luxembourg, even though as early as 2004, the government promised to carry out a process of merging municipalities. The total number of municipalities was slated to have been winnowed down to 71 in 2017; however, this has not yet happened. This ministry’s oversight is paired with substantial financial transfers from the central government to local entities, which, apart from a substantial share in corporate-income-tax revenues, lack autonomous sources of revenue. The largest municipality is the city of Luxembourg, which numbers 124,832 (2022) inhabitants. Two-thirds of local entities have fewer than 3,000 inhabitants, a size which is believed to be far too small to handle modern political, administrative and technical matters. Over the last decade, this challenge has led to the creation of so-called municipal syndicates, or associations of municipalities (syndicats intercommunaux), whose major purpose is to jointly offer services in areas such as waste management, water supply, and sports and leisure activities. Over the course of the last decade, the number of municipal syndicates has steadily risen. Luxembourg’s cities and municipalities are incorporated in an association called SYVICOL.

Major reform discussions and topics currently on the agenda include further redefinition of administrative structures, for instance by continuing the process of municipal mergers (six of them have been implemented so far), and the character of the relations between the central state and the local level, especially with regard to reforming municipal finances to render these entities more stable.

The municipalities’ major sources of income include funding from the central state and revenues from the occupational tax (Gewerbesteuer), which is levied at the local level. Since 2017, due to the full budgetary assumption of teachers’ salaries, grants to local budgets have been increased, providing municipalities with greater financial and planning security. Despite the financial impact of the coronavirus pandemic on Luxembourg’s economy, the 2022 state budget allotted €2.38 billion to the municipalities’ general endowment fund (+7.3% compared with 2021, or +11.2% compared with 2019).
“De Budget 2022.” Luxembourg’s Stat Budget 2022 official website. The Government of the Grand Duchy of Luxembourg. Accessed 3 January 2022.

“L’État plus généreux avec les communes en 2022.” Luxemburger Wort (02.11.2021). Accessed 14 January 2022.

“Public administration characteristics and performance in EU28: Luxembourg.” European Commission. Directorate-General for Employment, Social Affairs and Inclusion Support for developing better country knowledge on public administration and institutional capacity-building” (VC/2016/0492).
There is a constant tension between central and local government over the funding of responsibilities imposed on local governments. As welfare policies move more toward ensuring universal rights, the financial and administrative demands placed on the municipalities have become more challenging, particularly for some of the smaller units. As a result, local government funding has been increased. Resources from the central government to the local level is based on a standardized set of indicators assumed to represent expenditure needs in order to implement policy objectives.
This policy was initially met with great support by local authorities; however, these bodies rapidly adapted their activities to these new financial flows and relaxed budget discipline which, in turn, led to growing public debt at the local level. Local governments later again began asking the central government for additional funds. In general, regional governments and municipalities are adequately funded, but there have been efforts to promote voluntary structural reforms that would create larger, more robust units. However, these reforms have been slow and some have been rejected by voters in local referendums.
The United States has a federal system in which the 50 states are independent sovereign governments, although the federal constitution is “the supreme law of the land.” States have unrestricted power to raise their own revenue, although the federal government takes full advantage of their more productive sources, such as the income tax. There is no general presumption of uniform standards for public services. Rather, the federal government imposes standards or seeks to induce certain levels of performance in varying degrees on different issues.

State officials have often complained that federal mandates required substantial expenditures without providing the necessary funds. In 1995, the Republican Congress passed the Unfunded Mandates Reform Act. The act provides incentives for Congress and regulatory agencies to identify potential unfunded mandates in the legislative or rule-making process but does not prevent them from setting mandates. As a result, complaints from state officials have subsided. The Trump administration increased the states’ discretion in the use of funds for food stamps, medical care for the poor (Medicaid), and cash assistance to the poor. Unsurprisingly, the Biden administration is moving in the opposite direction, for instance by rolling back Medicaid waivers that allowed states to impose work requirements.
Over the past 30 to 40 years, the powers of communes, provinces (départements) and regions, delegated by central authorities or de facto taken over by local entities, have increased considerably. Normally a delegation of powers was accompanied by corresponding funding. However, as formerly centralized policies were notably badly managed or insufficiently funded, local units had to face huge expenditure increases that were not fully covered by the central government. Thus, more than two-thirds of non-military public monies are spent by local/regional actors, a figure comparable to the_ituateion in federal political systems. While local authorities in theory act as agents of the central government in some areas, they in fact have substantial autonomy. The recent regional reform reducing the number of regions from 22 to 13 has had quite an important consequence: the new regions will benefit from a fraction of the VAT. Previously, they did not receive their own tax revenues, depending instead on transfers from the central government. The goal of the merger was to generate efficiencies and thus save on resources. However, a recent Court of Accounts report shows that the new consolidated regions in aggregate spend more than those which were not merged.

On the other hand, piecemeal and ad hoc local taxation reforms, such as the elimination of the local business tax (taxe professionnelle) and its compensation by national state allocations in 2009, have not improved the situation. Growing tension between the central government and local authorities has been fueled by President Macron’s decision to exempt all local taxpayers from paying (by 2022) the “taxe d’habitation” (a rather unfair tax paid by all local residents, owners and tenants). The local tax will be replaced by property-tax revenues transferred from the provinces to the communes, while the provinces will benefit, like the regions, from a transfer of the VAT from the national level. In that way, regions and provinces benefit from a very dynamic national tax. The Constitutional Council has stated that this transfer was sufficient to fulfil the constitution’s fiscal guarantees to local authorities. However, the various levels of local government fear that they will lose resources, with the uncertainty contributing to discontent and protest. Moreover, local authorities fear that the state subsidies or new taxes will not evolve over time according to needs. At the same time, the central government monitors the policy implementation of local authorities. For instance, the government has passed a law obliging local authorities to fully apply the 35-hour working week regulation, as many local governments had offered even further reductions of weekly working times in concession to the unions. The expected savings from this change are said to correspond to 30,000 jobs (though this is probably an overoptimistic estimate).
Local authorities have three main types of income: local taxes (property tax, fines, tolls) earmarked to finance local services, government funds designated for social and educational services, and governmental balancing grants for basic services that poor local authorities are unable to fund. The government’s budgeting procedure for local government is clearly articulated and includes progressive budgetary support. Nevertheless, significant gaps in the economic capacity of rich and poor local authorities hinder the ability of poorer municipalities to implement tasks defined by the central government, especially in education and welfare domains.
Ben Basat, Avi and Dahan, Momi, “The political economy of local authorities,” IDI website 2009 (Hebrew)

Ben-Bassat, Avi, Dahan, Momi, and Klor, Esteban F., “Representativeness and efficiency in local government,” Jerusalem: IDI 2013, introduction summary in English: Representativeness-Abstract.pdf

Ben Basat, Avi and Dahan, Momi, “Strike in local authorities,” IDI website 15.1.2012 (Hebrew)

Dahan, Momi, “Why do local authorities hold back pay?,” IDI website 15.11.2009 (Hebrew)

“Instructions for local authorities’ budget frame proposal for the year 2012,” Ministry of Interior website (Hebrew)

Ministry of Interior budget of 2017-2018, Ministry of Interior website (Hebrew)

Ministry of Interior Work Plan, 2017-2018, Ministry of Interior Website (Hebrew)

Saada, Aria, “Ombudsman’s report 57ב: Budgeting social services for local authorities equality lacking,” Abiliko website 9.7.2010 (Hebrew)

“The State discriminates in welfare budgets between rich and poor authorities,” Ynet News, 6.12.17 (Hebrew),7340,L-5052419,00.html
In recent years, a double and to some extent contradictory trend has taken place in the relationship between central government and local administrations (regions, provinces and municipalities). On the one hand, constitutional reforms, legislative and administrative changes have transferred broader tasks to local governments. This has particularly been the case for regions where the devolution of functions in the field of healthcare has been particularly extensive. On the other hand, however, because of budgetary constraints and strong pressures from the European Union and international markets, the central government has increasingly reduced transfers to local governments in order to balance its own budget. Local governments have tried to resist this fiscal squeeze without great success and have had to increase local taxation. At the same time, the government has reduced the autonomy of municipalities to levy property taxes. As a result, functions delegated to subnational governments are now often underfunded, and local authorities have been forced to cut services.

Under the new Recovery and Resilience Plan (PNRR), resources for local governments, especially with regards to infrastructural expenditures, have been significantly increased. The open question is whether local governments will be able to spend these resources in time.
Portugal is one of the most centralized countries in Western Europe, with autonomous self-governing areas in the island regions of the Azores and Madeira. A total of 308 municipalities constitute the main subnational level of government. Few tasks are decentralized, which is reflected in very low levels of subnational public expenditure overall. According to available OECD figures for 2019, subnational government expenditure in Portugal accounts for 13.5% of total public expenditure, compared to an OECD-wide weighted average of 40.2% and an OECD weighted average for unitary states of 28.8%. This represents 5.7% of GDP (compared to an OECD average of 16.2%).

The preceding 21st constitutional government approved a deal with the National Association of Portuguese Municipalities in July 2018. This led to more substantial delegation of tasks and increased funding for local governments. Implementation of this decentralization program began in 2019, with municipalities able to selectively adopt elements of the decentralization process between 2019 and 2020. All elements of the decentralization package were to become mandatory in 2021, but this deadline was extended until March 2022. The new government’s program aimed to expand this decentralization package by identifying new responsibilities to be decentralized. A June 2021 deadline for announcing the new areas was not met, and this new package was then expected to be unveiled in 2022. However, with the dissolution of parliament in early December 2021 and legislative elections scheduled for January 2022, the program’s status remained uncertain as of the time of writing.
OECD, Subnational governments in OECD countries: key data, available online at:

Patrício, I. (2021), “É oficial. Adiada para 2022 descentralização na Educação e Saúde,” Eco, available online at:

Soldado, C. (2021), “Governo deixa derrapar meta da nova fase da descentralização,” Público, available online at:

XXII Governo Constitucional, Programa do XXII Governo Constitucional 2019-2023, available online at:
Spain has a very decentralized political and administrative structure, with 17 autonomous communities controlling over a third of public spending, including services such as healthcare and education. In some cases, tasks are delegated to autonomous communities without adequate funding sources. As a result, some autonomous communities have been incapable of adequately fulfilling their delegated tasks without help. A reform of this model planned in 2016 had to be postponed due to political deadlock
The debate over the criteria for allocating funding to autonomous communities continued in 2021, with most autonomous communities seeking a profound revision of the general funding system. Moreover, there is widespread demand for a further revision of the distribution of revenue, so that all autonomous communities have sufficient funds available to fulfill their tasks. In 2017, two expert commissions were appointed – one for regional financing and the other for local financing – which produced reports that same year describing the primary problems and offering reform proposals. Finally, in December 2021, the coalition government published a proposal for the long-awaited reform of the territorial financing model.
During the COVID-19 pandemic, the central government allocated a significant amount of additional resources to the regional governments to help them provide services and react to the health crisis. In 2021, these extraordinary funds totaled €13.5 billion.
Gobierno de España (2021), Hacienda envía una propuesta de población ajustada para determinar el reparto de los recursos del sistema de financiación autonómica,
Tasks are delegated to the states and territories not by choice, but by constitutional requirement, yet the states and territories are highly reliant on the federal government to finance the myriad services they provide, including primary, secondary and vocational education, policing, justice systems, public transport, roads and many health services. This dependence has been a source of much conflict, and many would argue it has led to inadequate provision of public services.

The federal government’s commitment to pass all revenue raised by a broad-based consumption tax introduced in 2000 on to states only marginally reduced the tension between the two levels of government. Certainly, it has not helped that prices in education and healthcare have risen faster than general price levels in recent years, while the proportion of household expenditure subject to the consumption tax has declined from 65% in 2001-02 to 59% in 2018-19.

In response, the Labor government serving early in the last decade attempted to address underfunding of healthcare and education, reaching funding agreements on healthcare with most jurisdictions in 2011 and making progress on agreements for school funding in early 2013. The coalition governments serving since that time have not shown the same commitment to increasing health and education funding, and indeed have indicated an intention to scale back federal funding. The notable exception is for the National Disability Insurance Scheme, which has had its funding secured by a 0.5% increase of the Medicare Levy (levied on taxable income) as of July 2019.
Parliamentary Budget Office reports on trends in taxation:

Report on National Disability Insurance Scheme:
Chile’s central government exercises strong control over municipal and regional budgets, and accounts for a significant proportion of local revenue. Currently, about 18% of the federal government’s budget is redistributed to the regional and local level (OECD average is about 45%). The assignment of originally regionally held duties to the municipal level has not necessarily implied a corresponding allocation of sufficient new funding.

Municipal programs are monitored relatively closely by the central government, although spending overruns do sometimes occur, resulting in local-government debt. The quality of services (e.g., the public health and education systems) provided by less wealthy municipalities are sometimes below average as some municipalities are unable to raise the income required to effectively provide the services themselves. This challenge is characteristic of Chile’s centralized state structure and must be regarded as a structural problem.

In 2021, regional mayors (Intendentes Regionales) were replaced by regional governors (Gobernadores Regionales). The latter are now directly elected by the people, which enables citizens to hold them accountable for promises made in their electoral campaigns. They are responsible for regional and urban planning, the administration of the National Fund for Regional Development (Fondo Nacional de Desarrollo Regional, FNDR), and implementation of social and economic policies at the regional level. Additionally, three new regional divisions were created by Law 21,074: Industrial Advancement (Fomento e Industria), Human Development, and Infrastructure and Transport.
On Chile´s decentralization process and the election of Regional Governors:
Undersecretariat of Regional and Administrative Development (Subsecretaría de Desarrollo Regional y Administrativo, Subdere),, last accessed: 13 January 2022.

Fundación Chile Descentralizado,, last accessed: 13 January 2022.

Final Report of the Commission on Decentralization:
Fundación Chile Descentralizado, “Informe final – Comisión Asesora Presidencial”, 7 October 2014,, last accessed: 13 January 2022.

On Law No 21,074 – Strenghening the Regionalization of the Country:
Library of the National Congress of Chile (Biblioteca del Congreso Nacional de Chile, BCN),, last accessed: 13 January 2022.

On Subnational Finance:
Organisation for Economic Co-operation and Development (OECD),, last accessed: 13 January 2022.

Organisation for Economic Co-operation and Development (OECD), “Making Decentralisation Work in Chile”, September 2017,, last accessed: 13 January 2022.
The regional tier within the Czech system of governance retains importance following a consolidation process of various administrative functions. The budgetary allocation of taxes, tax autonomy, and financial decentralization have enabled regional governments to exhibit independence in fulfilling governing duties and managing necessary infrastructure. While the capacities of subnational governments to deal with the pandemic have differed, the COVID-19 response in Czechia has not been harmed by conflicts between the different tiers of government. After the regional elections in October 2020, however, the willingness of the central government and especially Prime Minister Babiš to engage with the regional governors declined, as ANO had been outmaneuvered in most regions by various coalitions of the opposition. The controversial 2020 income tax reform has reduced the revenues of subnational governments, and has reduced their ability to fund schools and hospitals.
Estonian local governments are heavily dependent on financial resources from the central budget as local tax revenue is negligible. Central government defines 83% of municipal revenues and, although funds are allocated on a universal basis, the system produces large inequalities in the financial capacity of municipalities. The merger of municipal authorities in 2018 created larger scales of economy and increased the financial sustainability of municipalities. In addition to administrative measures, the funds allocated by the central government to municipal authorities have been increased and regulations on using targeted transfers have been relaxed. Revision of the land tax rates is also expected to strengthen municipal revenues. More broadly, the government aims to increase local government expenditure as a proportion of total public expenditure.
To take one example, a primary motivation for the creation of Irish Water in 2013 was the removal of responsibility for the provision of water services from local governments, many of which had failed to provide a reliable supply of high-quality water services to their populations and had seriously under-invested in water infrastructure over the years, perhaps largely due to inadequate funding from central government. Due to strong populist reaction, the funding mechanism for Irish Water, namely the imposition of household water charges, was strongly resisted. As a result, this funding mechanism was abolished and household water charges were repaid in 2017. The water initiative paralleled the 2005 decision to remove the provision of public-health services from regional health boards, centralizing this power instead in the Health Services Executive (HSE). As we have seen, this has not resulted in a smoothly functioning healthcare delivery system.

The functions and services that remain the responsibility of subnational units of government are funded both by central government and from local resources. In 2020, 36% of local government funding came from central government, 30% from commercial rates, 27% came from “goods and services” (e.g., from housing rents, waste charges, parking charges and planning applications), and 7% from local property tax rates (Gov, 2020).

While the introduction of the local property tax raised the proportion of funds coming from local sources, subnational units of government remain heavily dependent on central government for resources. This dependence is proportionately greater in the case of smaller and poorer local units.

In 2015, 80% of receipts from the local property tax (LPT), which was introduced in 2013, were to be retained locally to fund vital public services, while the remaining 20% were to be redistributed to provide top-up funding to certain local authorities that have lower property-tax bases due to variance in property values. The Local Property Tax Exchequer Receipts for 2021 amounted to €359.3 million. Local authorities can vary the basic LPT rate on residential properties in their area by up to 15% via what is known as the local adjustment factor (CI, 2021). In practice, most local councils have opted to decrease rather than increase local rates of LPT, which has led to continuing problems in funding local government.
CI (2021) Local Property Tax, Citizens Information, available at:

Gov (2020) Local Authority Budgets 2020, Prepared by the Department of Housing, Planning and Local Government, available at: tax/index.aspx
In Japan, local governments – prefectures and municipalities – strongly depend on the central government. Local taxes account for less than half of local revenues and the system of vertical fiscal transfers is fairly complicated. Pressures to reduce expenditures have increased, as local budgets are increasingly tight given the aging of the population. In 2019, the Ministry of Finance issued proposals to reduce the local-government workforce accordingly.

Other measures have included a merger of municipalities designed to create economies of scale, and a redefinition of burdensome local-agency functions. In rural regions, the merger of municipalities has led to some serious challenges and declines in provisions of services such as long-term care and other social and healthcare services. Since 2014 – 2015, special regional vitalization zones and special economic zones (tokku), where national regulations have been eased, have served as field experiments for improved policymaking. Many observers have criticized this approach as being insufficiently bold. In late 2018, the government unveiled a plan to designate 82 regional cities as core urban centers and support them with special assistance.
Takuji Okubo, The truth about Japan’s tokku special zones, JBpress Website, 02.07.2014,

Promoting local autonomy, The Japan Times, 9 January 2017,

Eric Johnston, Abe’s plan to battle Japan’s regional brain drain draws mixed reviews, The Japan Times, 9 January 2019,

Japan’s Finance Ministry proposes cuts to local-government workforce as population drops, The Japan Times, 23 May 2019,
Local governments enjoy a comparatively high degree of autonomy. The local government share of public expenditure was 24.3% in 2015, slightly above the EU average of 24.1%. In 2019, the government approved the 2020 budget with local governments receiving only 19.6% of Latvia’s total tax revenue.

Local governments have autonomous tasks, delegated tasks, and legally mandated tasks. Each type of task is meant to be accompanied by a funding source. In practice, however, funding is not made available for all tasks. The president’s Strategic Advisory Council has described local governments as having a low degree of income autonomy and a relatively high degree of expenditure autonomy.

Nevertheless, local governments suffer from a lack of capacity in financial management. The State Audit Office has repeatedly noted that local governments ignore accounting standards and requirements. In the absence of proper local and national approval procedures for government transactions, violations range from petty issues, such as covering entertainment costs out of the municipal budget, to large-scale fraud, such as a municipal official signing a €200 million bond.

Public sector reform is ongoing. In 2019, the government came to an agreement to reduce the number of municipalities. As of July 2021, that number decreased from 119 to 43. The aim of the reform is to create economically stronger and more highly developed municipalities, and to enable them to attract more investment, ensure sustainability and improve the quality of services to their citizens. However, some municipalities have contended that the revenue they derive from the personal income tax will now decrease as a result.
1. The President’s Strategic Advisory Council (2013), Management Improvement Proposals, Available at (in Latvian):, Last accessed: 05.01.2022.

2. Freedom House (2016). Nations in Transit: Latvia 2016. Available at: Last accessed: 05.01.2022.

3. European Comission (2017), Country Report: Latvia, Available at:, Last accessed: 05.01.2022.

4. Re:Baltica (2020) The biggest drop in revenue for the poorest municipalities, Available (in Latvian):, Last accessed: 05.01.2022.
Lithuanian municipalities perform both state-delegated (funded through grants from the central government) and independent (funded through a national tax-sharing arrangement and local sources of revenue) functions. Lithuania has a centralized system of government with powers and financial resources concentrated at the central level. The central government provides grants for the exercise of functions delegated to the local level, as local authorities have minimal revenue-raising powers. In 2018, the Congress of Local and Regional Authorities reported that the overall environment for local self-government in Lithuania was generally positive. However, its rapporteurs expressed a concern that despite the country’s quick economic recovery from the financial crisis, and despite increases in local budgets, local authorities’ financial resources were still not commensurate with their responsibilities. This limits municipalities’ ability to deliver the services that are within their area of responsibility. The management of the illegal migration crisis in 2021, when municipalities were playing an important role, again attracted public attention to the issue of adequate funding.
Congress of Local and Regional Authorities (2018). Local democracy in Lithuania, Report, CPL35(2018)02prov. Available at:
Municipal governments – the sole tier of subnational self-government in Slovenia – have suffered substantial fiscal difficulties for some time. Both the Cerar and Šarec governments focused on reducing the bureaucratic burdens without reducing the number of municipalities. However, the measures taken were not effective, and municipalities suffered from the government’s decision to postpone the re-introduction of the property tax. The Janša government finally succeeded in implementing effective measures to reduce bureaucratic burdens on municipalities, as well as reaching a financial agreement, and subsequently improved central government transfers to municipalities, which had been below the legal limit for a number of years. Relations between central government, and the Association of Municipalities and Towns of Slovenia (SOS), the Association of Municipalities of Slovenia (ZOS), and the Association of City Municipalities (ZMOS) improved substantially with a number of meetings between both sides and governmental visits to most municipalities.
Since 2009, transfers from the central government to municipalities via the Bank of Provinces have taken into consideration the number of inhabitants and the locality’s relative position on development indices. However, the new model has not eased the difficult financial situation of Turkey’s municipalities, which are seriously indebted to central-government institutions. According to the Turkish Court of Accounts’ reports, most metropolitan municipalities have substantial debts. Therefore, most local projects in major metropolitan municipalities are run by the central government.

Financial decentralization and the reform of local administrations were both major issues during the review period. The central administration (mainly through the Bank of Provinces) is still the major source of funding for local governments, with the funds channeled through regional development projects (e.g., GAP, DAP and DOKAP). The central government also continues to make transfers to the village infrastructure project (KÖYDES), the Drinking Water and Sewer Infrastructure Program (SUKAP), and the Social Support Program (SODES).

The resources allocated to metropolitan municipalities and special provincial administrations increased by 18.2% to TRY 97.3 billion in 2020. Nevertheless, arbitrary governance prevails. Most strikingly, the expenditures by trustees appointed to formerly HDP-governed municipalities such as Diyarbakır, Van and Mardin have been extremely high and without accountability. The trustee appointed to Van alone left a debt of TRY 1,389 billion in three years. In particular, extraordinary increases in office and dining expenses have been documented.

According to Law No. 5393 on Municipalities (Article 37), mayors make appointments in municipal companies. Shortly after the local elections on 20 May 2019, the Ministry of Trade granted this authority to the municipal councils. Moreover, the Ministry of Environment and Urbanization prepared a draft law that will terminate the powers of the opposition-controlled Istanbul Metropolitan Municipality (İBB) and the four district municipalities regarding the Istanbul canal project. The 10% share of revenues accruing to the IBB from bridge crossings was transferred to the government. Moreover, a Council of State decision has given municipal councils the power to appoint administrators in municipality-affiliated institutes, with a majority vote required.
Anadolu Ajansı. “2020 yılı merkezi yönetim bütçesi belli oldu,” October 17, 2019.

Evrensel. “Kayyumlar belediyeleri borç batağında bırakmıştı,” August 19, 2019.

Cumhuriyet. “Yeni Boğaziçi yasasıyla İBB’nin köprü geçiş ücreti payı da gidiyor,” November 1, 2019.

Cumhuriyet. “”23 Haziran sendromu yeniden hortladı!”: Başkanların atama yetkisi meclislere verildi,” March 16, 2021.
Within the United Kingdom, Scotland, Wales and Northern Ireland have devolved governments, which have responsibility for major public services, such as healthcare and education. England has more limited devolved government as a result of the relatively recent establishment of metro and city mayors, and local authorities in England have responsibility for a more limited range of public services, including schools. The central government exercises tight control over the finances of the devolved governments and local authorities in England. The bulk of local authority revenue in England comes from central government grants, even the rate of property tax is controlled centrally. As a result, local authorities were among the hardest hit by government spending cuts during the 2010s. Social care is an especially problematic area, but local authorities are also highly constrained in dealing with basic services, such as filling potholes in roads. Increased task funding for subnational governments has been announced in more recent annual budgets, but it does not go far enough to offset funding gaps.

Given the absence of a written constitution, there is no mechanism to govern the allocation of funds to finance these devolved tasks. As such, any decisions about funding are subject to political and administrative negotiations through formula-based need assessments. Agreements such as the “Barnett Formula” for Scotland, Wales and England provide some stability of funding, while for historical reasons Northern Ireland has a distinctive form of financing. However, despite their recent reaffirmation, these agreements could change if a future government decides that fiscal consolidation requires severe spending cuts.

The Scotland Act 2012 gave the Scottish government new taxation and borrowing powers. After the close outcome of the Scottish independence referendum and as a result of the Smith Commission’s report, the new Conservative government announced the devolution of further tax powers – including income-tax powers – to the Scottish Parliament. The details of additional borrowing powers for the Scottish Parliament were laid down in the Scotland Act 2016, which allows the Scottish government to borrow £450 million a year for infrastructure investment, such as on schools and hospitals, up to a total of £3 billion.

The National Assembly of Wales has far less fiscal discretion, but central government has agreed that further borrowing powers should also be devolved to the Welsh Assembly and agreed on a fiscal framework. A new settlement for the Northern Ireland Assembly has also been under discussion for some time. However, after the Northern Irish parties were unable to form an executive after the regional election in 2017, the province had an extended period of renewed direct control of Westminster. A quid pro quo for the Northern Irish DUP’s support for the May government was extra funding for the province.

The growing number of devolved administrations in England has led to the rise of several assertive new political actors (e.g., the Greater Manchester Combined Authority and the Liverpool City Region Combined Authority), whose fiscal relation to the central state is expected to become a major political topic as the government seeks to implement its “leveling-up” agenda. However, central government funding for local governments was one of the areas most heavily cut during the years of public spending retrenchment. The cumulative effect of these cuts has been considerable, with many councils obliged to run down already slender reserves, and a number of local governments have struggled to maintain even statutory services. Notably, special measures were imposed on the Conservative-run Northamptonshire County Council – in effect a declaration of the council’s insolvency. After the pandemic, a need for fiscal restrictions is likely to create tensions with devolved and regional entities, which have managed to raise their profile during the crisis.
Scully, Roger/Jones Richard Wyn 2011: 7. Territorial politics in post-Devolution Britain, in: Heffernan, Richard et al.: Developments in British Politics 9, Basingstoke and New York

Smith Commission Report:

Regions and Nations Factsheets, Autumn Statement 2021:
The central government sometimes and deliberately shifts unfunded mandates to subnational governments.
The division of competencies between central and subnational governments has been relatively stable. By far the most important revenue source of subnational governments is the personal-income tax, which contributes about 90% of all tax revenues and slightly more than half of total revenues. The remaining taxes account for only around 6% of total revenue, the most important being the property tax (approximately 3.3% of total revenue). The second most important source of revenue is the various types of administrative fees (user charges being the most significant among them, as they collectively make up approximately 17% of total subnational revenues). Grants from the central government (often administered via counties) and various assistance funds from abroad rank third. Finally, about 8% of subnational governments’ revenues derive from the various types of property they own (business premises, apartments).

Strong regional and local differences have long hindered subnational governments from being properly financed. Many municipalities and towns, most of them in rural areas, are poor and therefore face severe difficulties in providing public services. In addition, due to a lack of consistent long-term policies, the allocation of central-government grants is complex, unclear and subject to sporadic alteration. Although local government units have substantial autonomy in providing services related to economic activity, preschool education, and culture, sports and religious activities, they have limited autonomy in financing such responsibilities because the proceeds from tax sharing and central-government grants are earmarked. Moreover, many public services depend on financing from both central and local government levels, undermining their coherent delivery. In 2018, the Plenković government decided to transfer some income tax revenue to municipalities and cities. This has enhanced fiscal capacities within these local governments. However, the level of effective administrative and political decentralization remains low according to analyses by the Committee of the Regions.
Koprić, I., A. Musa, V. Dulabić (2016): Local government and local public services in Croatia, in: H. Wollmann, I. Koprić, G. Marcou (eds.), Public and social services in Europe: from Public and municipal to private sector provision. London: Palgrave Macmillan, 201-215.

Bajo, A., M. Primorac (2018): Croatia: instruments of fiscal equalisation, in: W. Bartlett, S. Kmezic and K. Djulic (eds.), Fiscal Decentralisation, Local Government and Policy Reversals in Southeastern Europe, Cham: Palgrave Macmillan, 53-80.

Committee of the Regions division of powers report:
Task funding remains a contentious issue. Although many new schemes have been put in place, funding remains inadequate. Local councils in Malta are primarily municipal bodies, and cannot raise revenue through local taxes. However, as they are an integral part of the political system, and under party control, they come under pressure to carry out tasks beyond their remit. Nearly all funding for local-government activities comes from the central government, with a small fraction sourced from local traffic fines. Other funding comes from EU financed projects, or one-off donations from government or the Planning Authority. As of 2019, the regional committees were allocated a fund containing more than €3 million. These committees have now been relieved of all expenses relating to local tribunals, as these costs are now borne by the Local Enforcement System Agency (LESA), which is under central control. In 2021, €500,000 was made available to local councils to finance capital projects, while another fund was established to finance open green spaces. In 2020, the total allocation for local councils was €48 million. The 2020 auditor general report on local government stated that “a number of Local Councils face financial distress and are heavily reliant on Government grants to sustain their operations. This is mainly due to inappropriate financial planning and management which could result in funds not being utilized economically and efficiently. Allocation of funds intended to cover administration costs also did not suffice.” The report concludes that in 2020 24 councils ended in deficit and/or with negative retained earnings.
44 local councils request devolution of government property Malta Today 11/09/2015
Money for local councils Times of Malta 14/02/2015
Local government culture fund 2018 – 2020
35.5 million budget for 68 local councils in 2017 The Malta Independent 04/07/17
The Independent 12/12/18 A total of 30 local councils benefit from the capital projects fund
Financial Allocations to local councils January -December 2018
In Slovakia, the degree of decentralization is relatively high. Despite the power of the Association of Towns and Communities of Slovakia (ZMOS), funding for subnational governments has been precarious. While the shares of both municipalities and regional self-governments in personal income tax revenues have substantially risen since 2014, their strong reliance on personal income tax has made their revenues highly dependent on the performance of the economy. About a third of the revenues come from state transfers the allocation of which does not follow clear criteria and is often driven by the patronage of subnational governments. During the first year of the COVID-19 pandemic, the Matovič government has transferred a lot of tasks, including mass testing, to subnational governments, without providing them the requisite financing.
South Korea
While South Korea remains a unitary political system, a rather elaborate structure of provincial, district and neighborhood governments has been in place since 1995. Local governments play an important role in providing services to citizens and respectively account for about 35% of government spending in 2017. However, local and state governments have relatively little ability to raise their own revenue and thus depend on central-government support. The financial independence of provinces and municipalities has steadily decreased over the past decade. The fiscal self-reliance ratio dropped from 56.3% in 2003 to 52.5% in 2016. The share of local government revenues raised via local tax revenues decreased from 35.5% in 2006 to 30.7% in 2019.

The Moon administration aimed to transfer additional fiscal authority to local governments. In October 2019, it announced a plan to restructure the relative size of national and local budgets from 8:2 to 7:3. The plan included transforming part of the national value-added tax into a local consumption tax.
OECD. 2021. Perspectives on Decentralisation and Rural-Urban Linkages in Korea,
OECD, Government at a Glance Database,
“High welfare-related costs stymie local governments,” Korea JoongAng Daily, Oct 14, 2014
Korea Herald. Moon vows efforts for greater local autonomy. June 14, 2017.
Kwak, Young-sup. “Fiscal Self-Reliance of Local Gov’ts Worsens over 13 Years.” Yonhap News Agency, November 13, 2017.
Unfunded or insufficiently funded mandates have been a long-standing issue in Sweden; indeed, recent studies show an almost complete unanimity among local governments regarding their frustration with insufficiently funded mandates.
Subnational governments enjoy extensive autonomy in relation to the central government in Sweden. Local governments and their national association, the Swedish Association of Local Authorities and Regions (SALAR), have insisted that all tasks placed upon them by central government must be fully funded.

SALAR has made this claim an overarching principle, which it emphasizes whenever the central government delegates tasks to local authorities. Instead of fully funded mandates, though, the central government frequently negotiates the funding aspect of delegated tasks with the local governments and SALAR. From the local authorities’ perspective, this problem has become more significant as the central government has increased its control over local authorities during the past couple of years, as the Swedish Agency for Public Management recently showed (Statskontoret, 2018). A recently formed commission of inquiry (Regeringskansliet, 2020) is likely to result in municipal reforms in the years to come.
Regeringskansliet. (Government Offices of Sweden). 2020. ”Starkare kommuner – med Kapacitet att Klara Välfärdsuppdraget.”
Statskontoret. 2020. ”Utveckling av Styrningen av Kommuner och Landsting 2019.” Stockholm: Statskontoret.
Over the course of recent decades, Belgium has delegated several sovereign functions of the central government to local entities: to the three regions (Flanders, the Brussels region and Wallonia), to linguistic communities (Flemish, French, and German), and to municipalities (communes/gemeenten; a city may be subdivided into several communes). Due to recurrent political stalemates between the Flemings and the Francophones, the Brussels region is chronically underfunded. This makes it unable to implement its policy with full independence. It depends on cash injections from the other regions or the federal government.

Municipalities are sufficiently funded only in rich areas, as their main source of funding is the personal income tax levied on locals. Reductions in unemployment benefits have also had spillover effects on these municipalities, since they are financially responsible for providing minimum income support to the poor. Meanwhile, the COVID-19 crisis has increased their expenditure (for instance, some of the local contact centers – Centres Publics d’Action Sociale / Openbare Centra voor Maatschappelijk Welzijn – experienced a 49% increase in requests in 2020 in comparison with 2019) and reduced their income (as a series of taxes, such as those on café/restaurant terraces, parking and markets were extremely negatively impacted).

Likewise, the government agreement also implies serious cuts in financial transfers from Flanders to Wallonia in the coming years. But since Wallonia is a post-industrial region still in economic transition, with unemployment levels twice as high as those in Flanders, it is difficult to see Wallonia not continuing to suffer from chronic underfunding. All this has been made even more difficult after the floods that hit Wallonia hard in the summer of 2021 (damages were much less severe in Flanders). In contrast with Germany, where Berlin agreed to cover half of the costs (for a total of €30 billion) following the floods that hit the Rhineland, a much richer region than Wallonia, in Belgium, the federal government proposed a loan of €1.5 billion, rejecting the idea of a transfer as suggested by the secretary of state for recovery, asserting that the current financing law does not allow the federal government to make such a transfer.

The government agreement also envisioned a decentralization of taxation. However, the main sources of state financing (direct taxes and VAT) will remain centrally controlled and collected, with the funds redistributed according to pre-agreed sharing rules. Redistribution issues remain a bone of contention between the main regions and communities, with the health crisis following on the heels of the recent financial crisis having heightened tensions.
One of the promises of the governing coalition formed at the end of 2021 was that they would consider 2% of the 10% income taxes to remain at the disposal of the municipal government where the income was produced in the first place.

As of today, local governments in Bulgaria receive most of their revenues from the central government and have a very limited revenue base of their own. Municipalities receive funding from the central government in three ways: a portion of the revenues from some general taxes are designated for municipal budgets; the central government subsidizes municipal budgets; and the central government delegates some tasks (mostly responsibility for managing schools and hospitals) to municipalities, transferring the associated financing to them (known as delegated budgets).

The National Association of Municipalities claims that the central government routinely leaves delegated functions underfunded. There have also been allegations that the central government favors municipalities headed by the parties governing at the national level.

Currently, all revenues, except for municipal taxes, are to be sent to the central government, which means mayors must request transfers. No changes are currently under discussion, as the reform mentioned above is intended to address the problem.
Local authorities are subject to extensive central government control. They receive substantial state subsidies, amounting in some cases up to 40% of their budget. In addition, the Council of Ministers, in particular the ministers of interior and finance, have extensive powers of control and management for the finances and assets of municipalities. Reform of the municipalities bill was presented to the parliament in early 2022, following a series of inconclusive debates since 2014. Existing plans for mergers and reorganization aim to address critical challenges facing local governments by making them more efficient (including financially), improving management, fighting corruption and upgrading the quality of services.
1. Local government elections postponed until May 2024, Financial Mirror, 17 September 2021,
Mexico has three levels of government – central, state and municipal. In Mexican federalism, state governments are politically and economically more powerful than municipalities. The state governors’ association is a powerful lobby group that bargains effectively with the central government. In general terms, Mexico’s intergovernmental transfer system must reduce vertical imbalances and discretionary federal transfers. The latter are distributed from the center across states with political, rather than policy goals in mind and constitute a substantial share of government spending. Moreover, Mexican states need to increase their own revenues in order to become less dependent on central government transfers.

Due to government austerity, which has been a central theme for President López Obrador, underfunded mandates and insufficient resources have made successful completion of many government tasks challenging, and have undermined the realization of the principle of subsidiarity in Mexico’s fiscal federalism. In the wake of the COVID-19 pandemic, President López Obrador announced a 75% budget cut, which seriously threatens many state activities.
Since 2010, the national government has devolved a significant number of implementation tasks to subnational governments. Subnational governments, which are positioned closer to citizens, are presumed to be more effective in delivering localized social and healthcare policy responses. However, local governments did not receive commensurate financial compensation for their additional activities, as “tailor-made” policies were intended to involve savings for the national budget. The more complicated interadministration relations and multilevel governance structures have made government and administrative responsibilities fuzzier, and policy performance harder to evaluate. According to data published by the Association of Local Governments (VNG), nearly half of such government entities are not financially resilient. Provincial and local audit chambers do what they can, but the amount and scope of decentralized tasks is simply too large for their capacity at this moment. Policy implementation in the fields of policing, youth care and care for the elderly in particular are increasingly sources of complaints by citizens and professionals, and thus becoming matters of grave concern.
VNG, De wondere wereld van de gemeentefinanciëen, 2014 (, consulted 9 November 2016)

Financieel Dagblad, 26 February 2019. Gemeenten in zwaar weer door verplichte sociale uitgaven.

VNG, 23 November 2021. Financiële weerbaarheid bij veel gemeenten onder de maat

NRC-H, Engelaar, April 30, 2021. Stop de fictie van ‘lokaal maatwerk’
Traditionally, in Greece, subnational governments raise limited funding independently and remain under the tutelage of the central government as far as funding is concerned. The revenue of subnational governments primarily comes from the state budget. In the past, the central government would sometimes deliberately shift unfunded mandates to subnational governments, but this practice was curtailed during the economic crisis of 2010–2018. Since the change in government in 2019, the New Democracy government has prioritized stimulating economic growth primarily through incentives to private investors rather than through subnational governments or other state entities. A policy shift to recalibrate the distribution of funding between the central and subnational governments is not in sight.
Since 1999, Poland has supported three tiers of subnational governments: municipalities, districts and regions. Since 2015 and even more so since the municipal elections in October 2018, the relationship between the central government and the majority of local governments has been tense, as the majority of larger cities are controlled by opposition parties. Several reforms have shifted costs to the subnational governments or have deprived them of much needed money. Despite their strong role in healthcare and education, municipalities received little budgetary support from the central government during the COVID-19 pandemic. While the Local Investment Fund of July 2020 provided PLN 12 billion (€2.68 million) of non-refundable support for infrastructure, education and digitalization, the money came late and the process was opaque. Subnational governments’ fiscal problems have been exacerbated by a decrease in the availability of EU funds at the local level.

There were discussions between 12 of Poland’s larger cities about suing the government due to the government’s failure to ensure adequate task funding. And in the course of the debate on the rule of law instrument for the EU recovery fund and the budget in general, several municipalities wrote a letter to the European Commission in December 2020 in which they distanced themselves from their government’s veto position (Zalan 2020). In summer 2021, the Association of Polish Cities strongly criticized the tax changes envisaged in the government’s “Polish Deal,” arguing that the changes would impose substantial revenue losses on municipalities.
Zalan, E. (2020): Warsaw and Budapest seek EU funds despite national veto, in: EUobserver, December 8 (
Subnational governments suffer from a lack of revenues and thus remain dependent on central government funding. As the governing coalition has done little to secure sufficient funding for subnational governments, the quality of public services has remained low. Central government funding has been tainted by party bias, with subnational governments controlled by the ruling parties receiving more money. Moreover, the funds from Bucharest have come late, so that subnational units have scrambled to keep projects alive during the first months of each calendar year. The financial dependence of subnational governments has contributed to an unwillingness to implement larger-scale projects for fear of losing funding as a result of political changes. Concerns with bias in the distribution of funds to regional governments continued in 2021, when the USR-PLUS accused the PNL of using a large-scale infrastructure funding scheme to buy political support in subnational regions ahead of a party leadership campaign. The scuffle precipitated the collapse of the ruling government, forcing Romania into its third shuffle in two years.
The central government often and deliberately shifts unfunded mandates to subnational self-governments.
In the 1990s, Hungary reformed its public administration, and established a multilevel structure that provided extensive and meaningful rights in the policymaking process to all levels of administration. Since 2010, the Orbán regime has reversed this trend toward subsidiarity and has created a strict top-down state administration. The transfer of competencies from the subnational to the national level has gone hand in hand with an even stronger reduction in subnational governments’ revenue sources. As a result, the latter have fewer resources for the remaining tasks than before. As financial resources have been curtailed, many municipalities have lacked the financial resources to carry out basic functions. Moreover, central government grants have been discretionary and unpredictable. Municipalities and counties with an influential Fidesz leader have been in a better position to get additional funding; the other have been confronted with the newly introduced “solidarity tax” imposed upon rich municipalities.
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