implication of this result is that central governments wishing to enact a successful fiscal
consolidation should consider coordinating with the sub-central tier and in particular should
emphasise the importance of reducing their wage bill in this process. One way in which this
may be conducted in practice is via some form of centralised element to public sector pay
settlements, although adjustment to public sector employment and hours of work will also be
important.
In Tables 8 and 9 we switch our focus to decomposing changes in revenue during
consolidation attempts. Recall that the aggregate figures in Table 4 suggested that failed
consolidation attempts have tended to be associated with a greater increase in non-grant
revenues at both the central and sub-central tiers as compared with successful consolidation
attempts, although this difference was not statistically significant. In disaggregating total
revenue into its components we are able to refine this result and pin down some significant
differences between successful and failed consolidation attempts.
Table 8: Composition of changes in Revenue during consolidation attempts
(each shown as % of GDP)
|
Tax Revenues |
Non-Tax Revenues |
2 2 22 Grants | ||||||||||
|
All |
S |
F |
signif |
All |
S |
F |
signif |
All |
S |
F |
signif | |
|
Central |
0.70 |
0.60 |
0.73 |
0.02 |
-0.13 |
0.10 |
* |
0.02 |
0.00 |
0.03 | ||
|
Sub-Central |
0.10 |
0.14 |
0.08 |
0.00 |
-0.08 |
0.06 |
** |
-0.16 |
-0.47 |
0.02 |
*** | |
|
Success Index: |
(3) |
(2) |
(1) |
(0) |
(3) |
(2) |
(1) |
(0) |
(3) |
(2) |
(1) |
(0) |
|
Central |
0.60 |
0.87 |
0.69 |
1.27 |
-0.13 |
-0.09 |
0.09 |
0.36 |
0.00 |
0.09 |
0.00 |
-0.02 |
|
Sub-Central |
0.14 |
-0.17 |
0.34 |
0.29 |
-0.08 |
0.04 |
0.06 |
0.10 |
-0.47 |
0.02 |
-0.02 |
0.09 |
In Table 8 we disaggregate revenues by source: taxes, non-tax revenues (essentially user
charges and fees), and grants, and Table 9 splits tax revenues accruing to the sub-central tiers
into ‘shared’ taxes, that are controlled and distributed by the central tier, and ‘own-source’ tax
revenues over which the sub-central tiers have a degree of autonomy. Unfortunately GFS does
not distinguish between shared and own tax revenues, but we have been able to supplement
this source with data for 1995 from OECD [1999] and from Rodden [2002]. Sub-central taxes
22 For two of our observations, Spain 1985 and 1986, constitutional reform resulted in the assignment of certain
expenditures to sub-central tiers to be financed by grants. Thus our data points are likely to be influenced by such
changes. Upon elimination of these two observations, the average change in grants during unsuccessful
consolidations stands at -0.05 and the difference between successful and unsuccessful consolidations remains
significant.
18