Depending on their administrative structure – to a large extent based on whether they are administratively organised as a federal or unitary countries – central, state and local governments are responsible for different functions and have different spending responsibilities. There are several government functions that require co-ordination across government levels and shared funding. The need to improve the quality and efficiency of government spending has confirmed sub-central governments as important players in the implementation of public policies. Indeed, sub-central governments could be considered better equipped than central governments to obtain information on local needs and better placed to tailor the provision of public services (OECD, 2022).
In 2021, on average, central government carried out 45.5% of total public expenditure, while state (21.5%) local governments (14.3%), and social security funds accounted for the remainder. However, there are notable differences among countries. The share of expenditure by central government ranged from 16.4% of the total in Switzerland to 89.3% in New Zealand in 2021. In 2022, 17 of the 26 OECD countries with available data registered increases in the share of central government expenditure compared to 2021, indicating a trend towards a centralisation of spending across the OECD. This might be due to healthcare being increasingly centralised (OECD, 2021b) or due to fall in subnational government revenue relative to the national government as a result of the COVID-19 pandemic (OECD, 2021a) (Figure 11.12).
Despite this general trend, there is variation across countries. In total, 29 out of 37 countries saw a relative increase in central government expenditure between 2019 and 2021. On average, national government expenditure increased by 4.3 p.p. of total spending in the OECD. The United States (7.6 p.p) and Costa Rica (7.9 p.p.) had the largest relative increases in central government expenditure. Chile experienced the largest relative decrease in central government expenditure, by 10 p.p. (Figure 11.13).
