OECD Regional Development Policy Committee MULTI-LEVEL GOVERNANCE, DECENTRALISATION, SUBNATIONAL FINANCE AND INVESTMENT

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1 OECD Regional Development Policy Committee MULTI-LEVEL GOVERNANCE, DECENTRALISATION, SUBNATIONAL FINANCE AND INVESTMENT

2 S u b n a t i o n a l g o v e r n m e n t s a n d t h e O E C D The world s governments include 17 Federal countries & 84 Unitary countries Among which: 31 have 1 layer of subnational government 42 have 2 layers of subnational government 23 have 3 layers of subnational government SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION Among OECD members 9 Federal countries & 26 unitary countries and almost subnational governments. At the municipal level the same proportion have less than inhabitants as more than inhabitants, 30% less than inhabitants, 30% inhabitants, 24% inhabitants, 16% Experienced in this diversity, the OECD understands the distinct challenges associated with effective multi-level governance relations and helps countries identify appropriate mechanisms to support better policy implementation at the subnational level.

3 S u b n a t i o n a l g o v e r n m e n t s a r e ke y e c o n o m i c p a r t n e rs Did you know 40% Is approximately the level of public expenditure occurring at the subnational level in OECD countries Subnational governments are on average responsible for of public investment 59% This matters because On average, subnational governments are responsible for: 59% of public investment 63% of total public staff expenditure 32% of public tax revenue 20% of public debt OECD SUBNATIONAL GOVERNMENT EXPENDITURE BY ECONOMIC FUNCTION (% of general government, 2015) 2 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 40.3% Greece OECD Minimum Maximum Canada 59% Chile Canada 31% Estonia Canada 20% Greece Expenditure Investment Tax revenue Debt* Canada *: Debt OECD definition ie including, in addition to "financial debt", insurance reserves and other accounts payable. No data for Mexico, Chile and New Zealand.

4 Canada Belgium Mexico Israel Japan Spain Australia Switzerland Germany United States OECD35 Italy France Finland Korea EU Sweden Netherlands Czech Republic Poland Austria Slovenia Portugal Denmark Norway New Zealand Hungary Iceland United Kingdom Luxembourg Latvia Turkey Estonia Slovak Republic Greece Ireland Chile S u b n a t i o n a l g o v e r n m e n t s a r e ke y e c o n o m i c p a r t n e r s And they also invest on average more than central governments SUBNATIONAL SHARE OF PUBLIC INVESTMENT (2015) Subnational government Central government & social security 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 92.8% 59.3% 52.6% 12.0% in areas critical for growth and wellbeing OECD SUBNATIONAL INVESTMENT BY AREA (2015) Other*, 15.3% Environmental protection, 6.3% Housing and Community amenities, 8.8% Economic affairs / Transport, 39.8% General services, 9.4% Education, 20.5% 3 *Other: defence; public order and safety; health; recreation, culture and religion; social protection.

5 S u b n a t i o n a l g o v e r n m e n t s a r e ke y e c o n o m i c p a r t n e r s E n s u ring a f r u i t f ul p a r t n e rs h i p c a n b e t r i c k y SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION Ensuring a fruitful partnership can be tricky Managing the relationship between national and subnational levels can be challenging: Relationships are complex Accountability may be unclear Resource capacities may be low Stakeholders are many and diverse Objectives and priorities may not align but it doesn t have to be Solid multi-level governance practices help: Integrated policy approaches Appropriately funded mandates Sound performance measurement Clear attribution of responsibilities Vertical and horizontal coordination tools Reliable data for evidence based policy making Strategies and programmes collaboratively generated And when properly implemented so can decentralisation, which may: Build resource capacity Create room for experimentation Enhance transparency and accountability Distribute national resources more equally Strengthen opportunities for democratic governance Favour stronger regional innovation and performance Better match local needs and local preferences for public services 4

6 SNG expenditure as a % of GDP S u b n a t i o n a l g o v e r n m e n t s a r e ke y e c o n o m i c p a r t n e r s and may have a positive incidence on GDP There appears to be a correlation between subnational government expenditure and GDP in OECD countries: COMPARING SUBNATIONAL GOVERNMENT EXPENDITURE AS A % OF GDP AND GDP PER CAPITA (2013) 40% DNK 35% 30% 25% 20% 15% 10% 5% 0% CAN ZAF BRA RUS SWE FIN BEL ESP VNM DEU CHE CHN R² = JPN AUS AUT USA ARG IND UKR ITA PHL COL MEX HRV POL KOR ISL NLD NOR FRA GBR MDA MNG GHA PER ROU LVA KAZ EST SVN CZE KGZ NGA GEO IDN SRB BGR HUN LTU MNE SVK PRT ISR ZWE UGA TZA KEN PSE HND MAR ALB ECU THA TUR NZL MWI GIN BFA MLI BEN SEN ARM SLV PRY JOR CHL MYS GRC IRL TCD KHM COG GRM CPV JAM TUN DOM CRI AZE MUS CYP MLT 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 GDP per capita (USD PPP) Source: OECD (2016), Subnational Governments in OECD Countries: Key data; OECD (2016), Subnational Governments around the World : Structure and Finance; Online database: database: based on OECD National Accounts. The OECD works with member and non-member governments to seize the opportunities and manage the challenges associated with diverse multi-level governance contexts. Here s how 5

7 E n s u ring a f r u i t f ul p a r t n e rs h i p c a n b e t r i c k y T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION B u i l d i n g n e t w o r k s T h e O E C D R e g i o n a l D e v e l o p m e n t P o l i c y C o m m i t t e e Since its inception in 1999, the Regional Development Policy Committee (RDPC) has become the pre-eminent international forum on multi-level governance. It leads the way in building dialogue and sharing experience among policy makers dedicated to regional and local development. As a body, it helps identify policy options and recommendations that sharpen multi-level governance mechanisms and boost subnational government capacity for more effective and inclusive regional development policies. The RDPC is at the heart of the OECD Centre for Entrepreneurship, SMEs, Local Development and Tourism, and brings together government officials from all 35 OECD member countries, from OECD partner countries such as Brazil, China, India, Indonesia, South Africa, and others including Colombia, Costa Rica, Lithuania, Morocco and Peru. In addition, it benefits from input and insight from other international bodies such as the European Commission, the European Union Committee of Regions, UNDP, and UNHABITAT. RDPC Meeting, 7-10 November T h e O b s e r v a t o r y o n S u b n a t i o n a l G o v e r n m e n t, F i n a n c e a n d I n v e s t m e n t In 2016, the OECD and United Cities and Local Governments (UCLG), with the financial support of the French Cooperation Agency (AFD), sought to establish a global Observatory on local government structure and finance. As a first step, a pilot study was published: Subnational Governments around the World: Structure & Finance. It is now proposed to further expand this initiative by formalising the Observatory in order to: Provide all levels of government with reliable data and indicators on subnational government structure and finance. Contribute to bridging the gap in subnational data and harmonised data availability. Offer comparative analysis on the performance of subnational governments in terms of local budget, fiscal and investment management, appropriate to whether they are federal or unitary. Provide standardised and transparent access to information. Contribute to evidence bases for regional and local policy development and reform, strengthen multi-level governance and make decentralisation policies more effective. Build constructive national and international dialogue on fiscal and financial diagnosis, support the exchange of experiences, peer-to-peer learning. Help monitor the financial ability of subnational government to implement the responsibilities entrusted to them and to design effective and efficient regional and local development policies.

8 T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h T h e O E C D N e t w o r k o n F i s c a l R e l a t i o n s a c r o s s L e v e l s o f G o v e r n m e n t The OECD Network on Fiscal Relations across Levels of Government provides statistics, data and analysis on the relationship between national and subnational governments, and its impact on efficiency, equity and macroeconomic stability across OECD countries. It is serviced by the OECD s Centre for Tax Policy Administration (CTP), the Economics Department, the Directorate for Public Governance, and the Centre for Entrepreneurship, SMEs, Local Development and Tourism. The Fiscal Decentralisation database is available online: and aligning with the global agenda We support the United Nations in ensuring the success of the 2030 Agenda for Sustainable Development Goals, focusing on issues related to: Multi-level Climate Investment COP 22 and COP 23 Climate Chance (Coalition on Multi-level Governance and Multi-stakeholder Action) Public investment and local finance UN Conference on Housing and Sustainable Urban Development 5 th UCLG Congress, World Summit of Local and Regional Leaders Addis Ababa Conference on Financing for Development 7

9 E n s u ring a f r u i t f ul p a r t n e rs h i p c a n b e t r i c k y T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION Providing evidence for policy action Up- to- d a t e s u b n a t i o n a l d a t a b a s e s The OECD offers public officials, academics and the private sector up-to-date data on subnational government structure and finance to support evidence-based policy making. The statistical guide Subnational Governments in OECD countries: Key Data, is updated annually, and provides data on subnational governments in OECD member and partner countries. It is considered indispensable by policy makers looking for reliable data on subnational: investment revenue and tax receipts budget balance and debt expenditure by economic function government structure and municipal size The OECD Subnational Government Structure and Finance database is an online tool that generates datasets tailored to policy maker needs. It can be accessed at: Subnational Governments around the World: Structure and Finance, is a unique resource on local level financial information. It aims to help officials at all levels of government address fiscal gaps and design effective and efficient development policies. The OECD, in partnership with United Cities and Local Governments (UCLG), has gathered data on subnational governments in 101 countries, including in those where data collection is less developed or not publically available. 8

10 T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h and supporting policy with analysis L i n k i n g m u l t i l e v e l g o v e r n a n c e a n d r e g i o n a l d e v e l o p m e n t Countries around the world are attuned to the complexity associated with multilevel governance systems adjustments in one dimension often require adjustments in another. They are also increasingly aware of the significant role of these systems in reaching effective public investment and public policy outcomes. The OECD works with officials at all levels of government to strengthen their multi-level governance practices in order to better realise regional development objectives and support policy initiatives, including decentralisation and broader territorial reform. THREE DIMENSIONS TO MULTI-LEVEL GOVERNANCE SYSTEMS Institutional (re-)organisation of powers, responsibilities, resources (e.g. via decentralisation) Territorial (re-) organisation of administrative boundaries or structures (e.g. via mergers) Managerial (re-)organisation of administrative processes (e.g. service delivery, HRM, budget, IMC) The 2017 report Multi-level Governance Reforms: Overview of OECD Country Experiences offers an overview of multi-level governance reforms in OECD countries, focusing particularly on the institutional and territorial dimensions. 9

11 E n s u ring a f r u i t f ul p a r t n e rs h i p c a n b e t r i c k y T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION U n d e r t a k i n g t h e m a t i c s t u d i e s a n d c o u n t r y r e v i e w s OECD subnational studies and reviews give public officials a chance to build dialogue and engage in collaborative networks with regional development stakeholders, in their territory and internationally. Tailored to country priorities, they help policy makers identify multi-level governance needs, including for decentralisation, and build context-specific solutions in a variety of areas, most recently by supporting: Chile to modernise its municipal system and strengthen decentralisation processes Colombia to make the most of its public investment capacity Ukraine as it institutionalises multi-level governance and decentralisation reforms M u l t i - l e v e l G o v e r n a n c e S t u d i e s The OECD Multi-level Governance Series offers policy-makers and other stakeholders guidance on establishing good multi-level governance practices in order to support achieving policy objectives. This series includes diagnosis and recommendations on: trends in asymmetric decentralisation operational guidance for policy makers strengthening multi-level coordination practices assigning responsibilities across levels of government improving public investment practices and effectiveness measuring spending power at different levels of government ensuring higher quality, efficient and effective public service delivery reinforcing transparency, accountability and citizen participation practices benefits and risks associated with fiscal, political and administrative decentralisation or recentralision reforms in developed and developing countries and strategies to address them Te r r i t o r i a l R e v i e w s OECD Territorial Reviews offer policy makers at national, regional, and local levels tailored guidance for strengthening placed-based regional development in their countries. Each review includes context-specific analysis and recommendations for action, to: improve economic performance and overall well-being. identify and overcome regional competitive, productivity and inclusiveness challenges. ensure that multi-level governance practices support attaining national and subnational policy objectives. 10

12 T h e O E C D R e g i o n a l D e v e l o p m e n t P o l i c y A p p r o a c h S u p p o r t i n g m o r e e f f e c t i v e p u b l i c i n v e s t m e n t a c r o s s l e v e l s o f g o v e r n m e n t Public investment is a shared responsibility among levels of government and with the private sector. It shapes choices, influences private investment and affects quality of life. For these reasons governments strive for investment success. Poorly managed public investment, or poor investment decisions, wastes resources, erodes public trust and can hamper growth opportunities. But, when done right, public investment can be a powerful tool to boost growth, and provide the right infrastructure to leverage private investment. Strengthening multi-level governance and taking a comprehensive approach to public investment can help. This includes: Coordinating across levels of government Ensuring sound framework conditions at all levels of government Coordinating across policy areas Promoting learning across levels of government Strengthening capacity for public investment The OECD report Investing Together: Working Effectively across levels of Government, dissects the relationship between different government actors, vertically and horizontally. It offers a practical guide for policy makers to assess their needs for investment capacity development. 11

13 E n s u ring a f r u i t f ul p a r t n e rs h i p c a n b e t r i c k y T h e O E C D M u l t i l e v e l G o v e r n a n c e P o l i c y A p p r o a c h SOME OPPORTUNITIES AND RISKS OF DECENTRALISATION w i t h g o o d p ra c t i c e r e c o m m e n d a t i o n s a n d i n d i c a t o r s To support public officials make better, more effective investment choices the OECD offers comprehensive guidance with its Principles on Effective Public Investment across Levels of Government. These principles help governments put into action the multi-level governance practices that can render public investment more effective. The OECD Toolkit for Effective Public Investment is a powerful online self assessment tool to help countries implement these principles. It is an easyto-use red-yellow-green light system that guides policy makers a selfdirected evaluation of their government s alignment with the Principles. Where there is room for improvement, the Toolkit offers concrete examples of what other countries are doing to address the same issues. Try it for yourself at: Countries are invited to adhere to the OECD Council Recommendation on Effective Public Investment across Levels of Government making a commitment to stronger multi-level governance practices to support public investment. AVERAGE PERFORMANCE BY OECD COUNTRIES ON THE INDICATORS OF MULTI-LEVEL GOVERNANCE OF PUBLIC INVESTMENT (2016) The OECD Indicators of Multi-level Governance of Public Investment currently under development shed light on performance in the different facets of multilevel governance, including vertical and horizontal coordination, institutional, fiscal, regulatory and planning practices. Transparent information Balanced budget rules Borrowing rules Stable capital transfers Cofinancing arrangements Coherent planning Regulatory coordination Coordination across sectors Performance monitoring Vertical coordination instruments Multi-level dialogue Horizontal coordination 12

14 C o n t a c t s P a r t n e r s o r g a n i s a t i o n s Ms. Dorothée Allain-Dupré dorothee.allain-dupre@oecd.org Ms. Isabelle Chatry isabelle.chatry@oecd.org And please visit: F o l l o w u s U s e f u l l i n k #OECDregions United Cities and Local Development European Committee of the Regions Lincoln Institute of Land Policy F o r O E C D p u b l i c a t i o n s World Bank UN Habitat