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Explaining the Sub-National Tax-Grants Balance in OECD Countries

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  • Claire Charbit

    (OECD)

Abstract

Normative principles provide a relatively clear set of rules for the balance between grants and taxes (box 1 reviews the normative theory), but in practice a variety of types of tax-grant systems are observed in OECD countries, which do not all follow these rules. According to the theory, own-taxes should be the primary revenue source (technically for the last dollar of spending), while transfers should only be used as a supplementary revenue source to correct for externalities, act as an insurance buffer, or redistribute resources between regions (see OECD 2006a, 2006b). Besides, the theory wants tax bases for sub-national governments to be confined to immobile resources such as land and user fees. In practice, transfers often represent a large proportion of sub-national governments’ revenues, and many countries use income taxes instead of property taxes at the sub-national level.

Suggested Citation

  • Claire Charbit, 2010. "Explaining the Sub-National Tax-Grants Balance in OECD Countries," OECD Working Papers on Fiscal Federalism 11, OECD Publishing.
    • Handle: RePEc:oec:ctpaab:11-en
    DOI: 10.1787/5k97b10s1lq4-en
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    Cited by:

    1. Agnese Sacchi & Simone Salotti, 2017. "The influence of decentralized taxes and intergovernmental grants on local spending volatility," Regional Studies, Taylor & Francis Journals, vol. 51(4), pages 507-522, April.
    2. Yang Zhiyong, 2017. "Local-central intergovernmental fiscal relations of China," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 3(2), pages 92-102.

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