Local budget institutions and fiscal rules effectiveness: a comparative study on European countries

• Applicant: Professor Dr. Jürgen von Hagen
• Subject Area: Economic Policy, Applied Economics
• Term: from 2008 to 2011
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 54842867

The trend towards decentralization makes all the more important local authorities public finance, as their part in total budget and especially in public investment is increasing in most of the European countries. This project aims at a better understanding of what determines the evolutions, structure, and consequence of local authorities public finance.The first step is an inventory of local fiscal restraints for the following countries that compose a good picture of existing sets of rules: France, Germany, Italy, Spain and Finland. A comparative analysis follows: what are the rules for budget formation? For budget implementation (and is it dealt with unexpected revenue or spending shocks?)? And, finally, what rules regulate local debt issues?The second step deepens the topic: are the rules enforced or circumvented? Are they efficient in terms of local debt, of the size of local governments? By extension, this phase aims at defining the most efficient rules.All these analyses are conducted by integrating into the picture political economy features that may influence, as a background or a leading constraint, the effectiveness and enforcement of local fiscal rules. An important achievement of the project is thus the creation of a new comparative database of fiscal rules for European local authorities, integrating in parallel electoral data.Starting from this point, we aim at obtaining an estimate of the impact of fiscal rules on local authorities and their elected politicians, in terms of debt levels and budget structure, while taking into account local authorities Political Economy features (most notably: political competition inside the local area, and strategic interactions between jurisdictions).

• DFG Programme: Research Grants
• International Connection: France
• Participating Person: Professor Dr. Etienne Farvaque