TRENDS IN MULTI-LEVEL GOVERNANCEDecentralisation, Recentralisation, Experimentation and

Making it all Work

Maria-Varinia Michalun

Unit for Decentralisation, Public Investment and Subnational Finance

Centre for Entrepreneurship, SMEs, Regions and Cities

Public Governance Conference:

Partnership between the Central Government and Local Government in

Pursuit of Common Public Governance Objectives

6 February 2019 – Tallinn, Estonia

• Trends in subnational growth, structures and

responsibilities

• What is driving these trends

– Decentralisation

– Asymmetric arrangements

• The evolving role of central governments and quality

partnerships

Presentation outline

TRENDS IN SUBNATIONAL

GROWTH, STRUCTURES

AND RESPONSIBILITIES

22.5

23

23.5

24

24.5

25

25.5

26

26.5

27

2000200120022003200420052006200720082009201020112012201320142015

Capitals' average GPD share Capitals' median GPD share%

Across OECD regions, disparities in GDP per capita

are larger within countries than across countries.

Following the crisis, disparities across countries are

rising again.

However, there is an increasing concentration

of economic activity within OECD countries.

Capital regions contribute more than 25% to

the country GDP and their share is rising.

0.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

0.33

0.34

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Coefficient of variation for

GDP per capita

Average within country Across countries

OECD (forthcoming): Regions and cities at a Glance 2019

Economic activity is becoming increasingly concentrated

Municipalities are highly diverse and often fragmented…

Average and

median municipal

size (# of

inhabitants)

Municipalities by

population size

class

0

40,000

80,000

120,000

160,000

Cze

ch R

epub

lic

Slo

vak

Rep

ublic

Fra

nce

Cyp

rus

Hun

gary

Aus

tria

Spa

in

Luxe

mbo

urg

Mal

ta

Rom

ania

Ger

man

y

Cro

atia

Italy

Slo

veni

a

Pol

and

Latv

ia

Est

onia

Fin

land

Bel

gium

Bul

garia

Gre

ece

Por

tuga

l

Sw

eden

Net

herla

nds

Lith

uani

a

Den

mar

k

Irel

and

Uni

ted

Kin

gdom

Median municipal size

Average municipal size

0%10%20%30%40%50%60%70%80%90%

100%

Cze

ch R

epub

lic

Fra

nce

Slo

vak

Rep

ublic

Cyp

rus

Hun

gary

Spa

in

Aus

tria

Ger

man

y

Italy

Luxe

mbo

urg

Cro

atia

Rom

ania

Mal

ta

Fin

land

Slo

veni

a

Gre

ece

Est

onia

Latv

ia

Bul

garia

Por

tuga

l

Den

mar

k

Bel

gium

Net

herla

nds

Pol

and

Sw

eden

Lith

uani

a

Uni

ted

Kin

gdom

Irel

and

20 000 or moreinhabitants

5 000 to 19 999inhabitants

2 000 to 4 999inhabitants

Less than 2 000inhabitants

OECD(2018), Subnational Governments in OECD countries: Key data

…to manage this:

inter-municipal co-operation, mergers…

6

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Au

stri

a (1

950,

201

5)

Sw

eden

(19

52, 1

963)

Jap

an (

1953

, 199

9)

No

rway

(19

57, 1

967)

Den

mar

k (1

970,

200

7)

Lat

via

(200

9)

Fin

lan

d (

1976

, 201

0)

Bel

giu

m (

1975

)

New

Zea

lan

d (

1989

)

Gre

ece

(199

7, 2

011)

Tu

rkey

(20

08-2

012/

14)

Irel

and

(20

14)

Est

on

ia (

2017

)

Number of municipalities before the reform Number of municipalities after the reform Number of municipalities in 2017-2018

9,868

5,825

OECD(2018), Subnational Governments in OECD countries: Key data

…and a growing number of metropolitan areas

7

Number of metropolitan bodies created/reformed by decade

0

5

10

15

20

25

30

35

40

45

50

1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010

15 new metro

structures

created

between

2011 and

2013

Source: OECD Elaboration based on OECD Metropolitan Governance Survey.

* Other: Defence; Public order and safety; Housing and community amenities; Recreation, culture and religion; Environment.

19%

22%

40%

13%

11%

16%

17%

15%

7%

12%

14%

14%

23%

17%

8%

16%

21%

16%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

MaltaCyprus

ItalyDenmark

GreeceLuxembourg

IrelandPortugal

FranceAustriaFinland

HungarySpainEU28

SwedenGermanyOECD 32Romania

United KingdomBelgiumPoland

Czech RepublicNetherlands

CroatiaBulgariaSloveniaLithuania

EstoniaSlovakia

LatviaEducation Health General Services Economic Affairs Social Protection* Other*

Subnational governments are key spenders and investors,

but…

Subnational

Governments:

Responsible

for 57% of

public

investment

(62% in

federal

countries)

on average

OE

CD

(201

8), S

ubna

tiona

l Gov

ernm

ents

in O

EC

D c

ount

ries:

Key

dat

a

9

Spending and investment capacity comes mostly from

tax revenue

3%

42%

45%

85%

43%

37%

10%

12%

15%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Malta

Estonia

Lithuania

Slovakia

Austria

Romania

Netherlands

Bulgaria

United Kingdom

Ireland

Cyprus

Greece

Belgium

Luxembourg

Poland

Hungary

Denmark

Croatia

Spain

Slovenia

Portugal

EU28

Italy

OECD 35

Czech Republic

Finland

France

Sweden

Germany

LatviaTaxes Grants & Subsidies Tariffs&fees Property Income Social Contributions

OE

CD

(201

8), S

ubna

tiona

l Gov

ernm

ents

in O

EC

D c

ount

ries:

Key

dat

a

10

Most responsibilities are shared among levels of

government…

Proportion of decisions where more than one government level is involved (%).

Source: OECD (2018) Fiscal Network Questionnaire on spending powers

…including among subnational tiers

Regional Level

• Secondary/higher education and VET/professional

• Spatial planning

• Regional economic development/innovation

• Health (secondary; hospitals)

• Social affairs (employment services, training, inclusion…)

• Regional roads and transport

• Culture, heritage, tourism

• Environmental protection

• Social housing

• Public order and safety

• Local government supervision (federal)

Intermediate Level

• Assistance towards small municipalities

• Responsibilities delegated by regional or central government

• Secondary or specialized education

• Supra-municipal social and youth welfare

• Waste collection and treatment

• Secondary roads and public transport

• Environment

Municipal/Local Level

• Education (nursery, pre-elementary, primary)

• Urban planning and management

• Local utility networks (water, sewage, waste….)

• Local roads and city public transport

• Social affairs (support for family, children, elderly, disabled, poverty…)

• Primary and preventative healthcare

• Recreation (sport) and culture

• Public order and safety (muni police, fire)

• Local economic development, tourism, trade affairs

• Environment (green areas)

• Social housing

• Administrative and permit services

Source: OECD (2016), Regions and Cities at a Glance

WHAT IS DRIVING THESE TRENDS

Increase role of regions around the world: Regional Authority Index

Trends: rising decentralisation

Source: Hooghe et al (2016) Measuring Regional Authority

The Regional

Authority Index

measures the

authority of

regional

governments in 81

democracies or

quasi-democracies

on an annual basis

over the period

1950-2010

14

Why do countries decentralise?

Benefits Challenges

• Allocative efficiency. Subnational governments often

hold valuable information on local demands and

conditions, which enables them to tailor public service

provision to meet residents’ needs.

• While country statistics do not allow for causal

conclusions, measures such as GDP, public

investments in physical and human capital and

education outcomes show a positive correlation with

decentralisation.

• Revenue decentralisation (i.e. the fact that SNGs rely

on their own source revenue) appears to be more

strongly associated with income gains than spending

decentralisation.

• Recent empirical evidence also indicates that

revenue decentralisation could be associated with

smaller regional economic disparities.

• In addition, empirical research results show that

decentralisation can be conducive to lower corruption,

greater citizen engagement and political stability.

• Useful platform for experimenting with public policies

• Lack of clarity in the assignment of

responsibilities

• Lack of sufficient administrative, technical or

strategic capacities

• Loss of certain economies of scale and

fragmentation of public policies

• Fiscal dimension: very often the weak or even

missing link of decentralisation.

• Lack of coordination and alignment

OE

CD

(20

19 fo

rthc

omin

g, M

akin

g D

ecen

tral

isat

ion

Wor

k: A

Han

dboo

k fo

r P

olic

ymak

ers

15

Trends: more asymmetric arrangements

Greater

convergence

between unitary

and federal

countries in terms

of more

differentiated

governance at the

subnational level

Rising trends in asymmetric governance arrangements as measured by the

Regional Authority Index (81 countries)

Administrative

and fiscal

asymmetric

decentralization

have increased

the most

Source: Regional Authority Index in Schakel (2018)

0

10

20

30

40

50

60

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Nu

mb

er o

f re

gio

ns

special autonomy asymmetry

16

Changing motivations: capacity, scale, experimentation

The initial motivations for asymmetry tended to be mostly

political and identical

New motivations today:

• A need to address capacity challenges: institutional and fiscal

frameworks tailored to local capacities

• Recognising the specificity of metropolitan areas

• Addressing the issue of scale

• Experimenting though learning-by-doing and testing new approaches

17

Benefits and risks of asymmetric decentralisation

Benefits

- Accommodate diverse preferences for autonomy across regions

- Adapting the institutional and fiscal frameworks to the capacities of subnational governments

- Experimenting

- Sequencing decentralisation

- Providing the enabling institutional environment to design territorial development strategies more targeted to local needs

- Tailoring solutions for special challenges

Risks

- Increased disparities

- Lack of accountability and transparency

- Complexity and coordination costs

- Lack of clarity for citizens

- Secession and autonomy

OECD (2019) forthcoming, Making Decentralisation Work: A Handbook for Policymakers

18

10 Guidelines for policy-makers

1. Clarify the responsibilities assigned to different government levels

2. Ensure that all responsibilities are sufficiently funded

3. Strengthen subnational fiscal autonomy to enhance accountability

4. Support subnational capacity building

5. Build adequate coordination mechanisms across levels of government

6. Support cross-jurisdictional cooperation

7. Strengthen innovative and experimental governance, and promote citizens’ engagement

8. Allow and make the most of asymmetric decentralisation arrangements

9. Consistently improve transparency, enhance data collection and strengthen performance monitoring

10. Strengthen fiscal equalisation systems and national regional development policies to reduce territorial disparities

OE

CD

(20

19 fo

rthc

omin

g, M

akin

g D

ecen

tral

isat

ion

Wor

k: A

Han

dboo

k fo

r P

olic

ymak

ers

THE EVOLVING ROLE OF NATIONAL GOVERNMENTS

AND QUALITY PARTNERSHIPS

20

The evolving role of the national governments

More strategic role

Setting conditions to for properly aligned policy objectives and policy coordination

Monitoring performance (of regions and cities)

Ensuring balanced territorial development throughout the country

Moving away from direct service delivery to enabling and guiding subnational authorities in their service responsibilities

Supporting experimental governance

Developing new capacities at the central level to cope with new functions

OECD (2019) forthcoming, Making Decentralisation Work: A Handbook for Policymakers

Quality partnerships for successful co-ordination

PITFALLS TO AVOID POTENTIAL SOLUTIONS● Undervalue dialogue and co-

operation tools

● Focus on formal arrangements

without taking care of their real

effectiveness and motivation of actors

● Ignore that developing strong,

trusting, and cooperative

relationships is a virtuous circle

that starts with practice

● Underestimate the role of informal

dialogues and social networks that

favour cooperative relations

● Some mutually dependent conditions

that can facilitate an effective

dialogue: simplicity of information

and feedback, transparency, of

rules; transversal engagement,

credibility, ownership

● Use formal instruments (like

contracts) to build trust between

parties

● Avoid unilateral decisions without

consultation

● Find the right balance between

top-down and bottom-up

approaches

OECD (2018), Rethinking regional development policy-making

22

Conclusions

• Subnational governments are key economic and social partners

• Service responsibilities are shared

• Taxes are major sources of revenue

• Subnational investment is significant but overall investment levels are declining

• Greater scale and greater autonomy is a dominant subnational territorial trend

• Decentralisation and experimentation are characterising multi-level governance systems

• Successful partnerships rest on building capacity at all levels and ensuring quality

relationships

Maria-Varinia Michalun: mariavarinia.michalun@oecd.org

Thank You