How do Sub-Central Government react to cuts in grants received from Central Governments Evidence from a Panel of 15 OECD Countries

Julia Darby, Vito Muscatelli and Graeme Roy

Working Papers from Business School - Economics, University of Glasgow

Abstract: Cross-country evidence on sub-central governments’ responses to cuts in grants received from central government shows the typical response is to adjust expenditure rather than offset cuts by raising ‘own’ revenues. Spending cuts are focused on the wage bill and, disproportionately, on capital expenditure. Even where countries have greater flexibility to offset the centrally imposed cuts, through a high degree of expenditure decentralisation, tax and borrowing autonomy, they tend not to exercise these powers. So, centrally imposed cuts result in expenditure restraint at the sub-central level, but the adjustment appears to suffer from short-termism, given the disproportionate focus on capital spending.

JEL-codes: E62 E63 H62 H77 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2005_18

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