Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries

regional/state jurisdictions, others do not, or retain control over some key functions (eg
Health in Germany and France and Social Security in all cases except Denmark). Some
unitary countries, the Scandinavian countries, have extremely devolved systems. In
Denmark, for instance, counties and municipalities accounted for 76% of all public sector
staff in 1998, and 56% of total expenditure by the public sector (European Communities,
2001). Following the reform of local government in 1970, Danish municipalities have been
responsible for a wide range of local services, ranging from primary education to care of the
elderly and the distribution of benefit payments.

Even if one looks beyond the countries in Table 1 for which consistent data is available³, one
finds that some federal EU countries retain a large amount of central control over these key
functions (eg Austria) ⁴. Again, we find that some unitary countries have engaged in
considerable decentralisation. In Sweden, municipalities and counties undertake 35% of
public sector spending, with medical care assigned mainly to county councils and education
(up to secondary schooling) mainly to municipalities.

Second, a number of EU economies have moved toward greater decentralisation of spending.
Again these data are only available on a consistent basis for some countries.

Table 2 shows that in Spain, for instance, the share of total government spending carried out
by sub-central government rose from 28% in 1980 to 36% in 1997. There has been a major
shift to assign spending to the regions (Autonomous Communities, ACs). Whilst functions
such as health and education have progressively been devolved to ACs, many competencies

³ The surveys in European Communities (2001) use figures based on countries’ own definitions, so data are not
strictly comparable across countries. The data in Table 1 uses consistent definitions across countries and over
time. One caveat remains: that local expenditures mandated by central government or spent on its behalf appear
as sub-central expenditures, and this may overestimate the extent of decentralization (see Ebel and Yilmaz
(2002)).

⁴ Austria, Italy and Sweden were omitted from Table 1 since the required breakdown by function is not available
in IMF Government Financial Statistics for these countries. Note that in the Table ‘Economic Affairs and
Services’ includes spending on Agriculture, Forestry, Fishing, Hunting, Mining, Manufacturing, Construction,
Transport and Communications and “other” Economic Affairs and Services.

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