reached for the period 2005-19 which maintains a federal contribution of about €10 bn per
year. Some observers have argued that the extent of equalisation has led to a lack of
accountability (see Spahn and Franz, 2000). But, despite a perceived need to incentivise the
Lander to improve their economic performance and efficiency, equity remains the guiding
principle of the new system.
Complexity and Transparency
If devolved government and fiscal autonomy is designed with the objective of increasing
accountability, a complex system, where various jurisdictions compete for the same tax base,
or where tax sharing is the norm, leads to far less transparency (Tanzi, 2001). As highlighted
in Table 3, a number of jurisdictions in federal countries rely largely on tax-sharing
arrangements (local authorities and Lander in Austria and Germany, Communities in
Belgium, provinces, municipalities and regions (Autonomous Communities) in Spain).
The Spanish experience is of interest, as they sought to introduce much greater fiscal
autonomy for their sub-central governments, and particularly the Autonomous Communities
(ACs) from 1993 onwards. In 1994 ACs relied on government grants or tax-sharing
arrangements for up to 96% of their expenditure. In the period 1994-96 ACs were allowed to
obtain a share of the personal income tax raised in their own territory, and they also began to
make greater use of fees and user charges. By 1996, the percentage of own revenues in the
ACs had risen to 18%. In 1997 a formal agreement, which is still in its implementation phase,
increased the range of taxes available to ACs (on wealth and property transfers) as well as
allowing them a greater share of their own revenues from personal taxation,12 with some ACs
able to exercise control over tax credits and rates. However, the result is a complex tax
system, especially when one considers that there are two lower tiers of local government
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