John Gibson - Financing European Local Government

Edited by
John Gibson
and
Richard Batley

First published 1993 by
FRANK CASS AND CO. LTD

This edition published 2013

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright 1993 Frank Cass & Co. Ltd

British Library Cataloguing in Publication Data
Financing European Local Governments. (Special Issue of Local Government Studies, ISSN 0300-3930; Vol.18, No.4)
I. Gibson, John II. Batley, Richard III. Series
352.1

ISBN 0-7146-4513-3

Library of Congress Cataloging-in-Publication Data
Financing European local governments / edited by John Gibson and Richard Batley.
p. cm.
Includes bibliographical references.
ISBN 0-7146-4513-3
1. Local financeEurope. I. Gibson, John, 1944 II. Batley, Richard.
HJ9415.T74 1993
336'. 0144dc20 92-40702
CIP

This group of studies first appeared in a special issue of Local Government Studies Vol.18, No.4 (Winter 1992), [Financing European Local Governments].

All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

JOHN GIBSON and RICHARD BATLEY

This is the second of two collections devoted to the question of local government in Europe. This volume deals with the financing of local (including, where applicable, state, provincial, and regional) governments in western Europe. The eight sections bring together an unusually large number of country studies in one volume: France, Germany, Great Britain, Italy, The Netherlands, four Nordic countries Denmark, Finland, Norway, Sweden, and Spain, as well as a comprehensive survey of grant systems in western Europe. The studies reflect the diversity of both the inherited finance systems and, despite a general trend of greater fiscal pressure in the 1980s, some diversity of the changes in the levels of financial discretion between countries.

The diversity of the roles and financing of decentralised governments in the countries of Europe has been the subject of a number of studies in recent years, Nevertheless, the ability of such theories to explain changes in systems and the divergencies, noted above, in recent trends in financing decentralised governments in Europe has not yet been demonstrated.

The studies here witness the commonly accepted differences between southern and northern Europe in the range and functions of decentralised governments which existed in most of the post-war period. In general the range of functional responsibilities was larger in northern than in southern Europe. This, however, has not uniformly been accompanied by greater buoyancy and diversity in local tax sources. Indeed, in northern Europe the increasing concern of central governments to control the growth of public expenditure in the 1980s has seen a number of instances where new tax ceilings have been placed on local governments. An interesting hypothesis suggested in the Scandinavian paper is that in fact the imposition of ceilings may lead to greater toleration of rising expenditure levels. It should be noted that there have been some extremely recent major changes in Sweden and Finland, and there may yet be further repercussions from the economic difficulties currently being experienced by Scandinavian countries. In southern Europe, despite fiscal pressure, there has been some decentralisation, although some of this is obviously due to the growth, after a long period of dictatorship, of democracy in Spain.

The distinction between northern and southern Europe also appears to be a useful classification with respect to the extent to which grant systems attempt to compensate fully for spatial inequalities in taxable resources and spending needs. In many of the countries included in this volume, however, the distribution of central grants was a subject of keen political debate.

The Netherlands, as noted by other authors, stand outside the broad northsouth categorisation, as does Germany, being the only federation included. In fact, Germany is a system which is obviously not in equilibrium, being subject to the traumas of unification. Here, there are many analysts who perceive urgent need for reform in the financing of decentralised governments, but such reforms are politically difficult to secure. Nor have the necessary reforms been easy to secure in some unitary countries, as the articles on Italy and France in this volume bear witness.

There is, in most cases, much insularity in the way each country has developed its system of local government and its local finance system This has long been the case in Britain, where the reorganisation of the structure and size of local government resulted in reliance on, relatively, extremely large local governments. The exclusively internal nature of debate on centrallocal relations and local finance is one of the striking features of a number of the cases included in this volume.

There has, of course, long been a predominantly normative approach in the work of economists on decentralised finance, where the theory of fiscal federalism has provided economic rationales for decentralised decision making, with as much reliance as possible on decentralised tax sources and user charges as sources of finance. This approach, which provides a contrast to the insularity of many other internal participants in the power struggles in each country over local finance, is reflected in a number of the papers with several authors criticising the insufficient use of local taxes and overreliance on shared taxes, central grants, and the central imposition of tax and expenditure limits.

Blair describes how the practice of financial equalisation between local or regional authorities varies greatly between European countries. Some put greater emphasis on equality, others on local autonomy; some seek total equalisation while others stress the need to preserve the incentive to develop local resources. He argues for relatively simple systems which remain comprehensible and do not blur accountability. As to instruments, most countries have avoided the politically difficult exercise of directly transferring funds from richer or poorer authorities, in favour of central (or federal) government grant systems to top up the revenues of weaker authorities, mainly through block grants. A small and decreasing number of countries rely on specific grants. There is a wide diversity of national systems reflecting both the contradictions between the various objectives of equalisation and the different circumstances of different countries.

Le Cacheux and Tourjansky consider the problems of local government finances in France ten years on from the decentralisation laws. Although local governments were given more functions and autonomy with the objectives of increasing efficiency in the provision of public services and enhancing local democracy, they have not been matched by any substantial changes in the local tax system. There has, instead, been an increase in central funding and some consolidation of specific grants into block grants. Striking features of the French system include the persistence of horizontal inequities with the absence of full resources equalisation, the prominent role of business taxation, and the out-of-date valuations on which property taxes have been based. However, France is on the verge of significant tax reforms with a revaluation currently underway and a change in the nature of departements share of the residential tax to a personal income tax although central government, perhaps influenced, they suggest, by recent British experience with the poll tax, has requested a postponement of the latters introduction. Le Cacheux and Tourjansky conclude that the system has glaring weaknesses and that although a redefinition of the partnership relations between central and local government is required, it is unlikely for political reasons.