Given their weight on public spending and investments, regional governments have a fundamental social and economic role, especially in federal countries.
In 2016, regional governments’ spending in EU and OECD countries accounted for nearly 19% of total public expenditure on average, representing up to 7.6% of GDP (Figure 5.11). On average, regional governments’ spending accounted for 41% of total SNG expenditure, with the remainder consisting of spending by municipalities, intermediate governments (e.g. provinces in Belgium and Spain, départements in France) and other related local entities. In federal countries, state governments (e.g. the states in the United States, cantons in Switzerland or Länder in Germany) expenditure accounted for 69% of total SNG expenditure, whereas this ratio reached only 25% for regional governments in unitary states (e.g. the regions in France or the provinces in the Netherlands).
Regional governments spent primarily on education (23%), economic affairs (20%), social protection and general public services (both 16%). In federal countries, education, social protection and health are the main spending areas, while in unitary countries, a large share of regional spending goes to economic affairs, education and general public services. In 2016, regional government investment accounted for 22.4% of total public investment, 0.7% of GDP and around 35% of total subnational investment. These ratios are much higher in federal countries (35.6% of total public investment) where state governments undertake a large share of investment projects. Economic affairs, which encompasses all investment in transport, economic development, energy and construction, constituted the main area of investment (36%).
Regional government revenue amounted to 41% of SNG revenue, 7.6% of GDP and 19.3% of total public revenue in 2016. The data show significant differences across countries, especially between federal and unitary countries. In federal countries, regional government revenue accounted on average for 69% of SNG revenue, while it averaged 23% of SNG revenue in unitary countries.
Regional governments’ revenue primarily comprises grants (50% of regional government revenue in 2016), and tax revenue (35%). Tariffs and fees stood at 8% of total regional revenue, followed by property income (4%) and other income (3%) (Figure 5.12). It is interesting to note that there is no large difference between the group of federal countries and that of unitary countries. Main discrepancies are at the country level. In some countries, regions are funded mainly through grants (Denmark, Mexico) while in other countries regions are mainly funded by taxes, be they shared or own-source based (Germany, Sweden).
The capacity of regional governments to raise tax revenues differs across countries. In 2016, regional government tax revenue accounted for 13.5% of total public tax revenue, and 3.3% of GDP. Taxes are the primary source of regional government revenue in Canada, France, Germany, Sweden and Switzerland, whereas in Denmark, the Slovak Republic and Turkey, regional governments do not receive tax revenues.
On average, regional government debt accounts for 13.2% of public debt and 11.7% of GDP in 2016 but federal and unitary countries differ substantially in this respect. In federal countries, regional government debt amounted to 25.8% of public debt and 23.4% of GDP in 2016, compared to 2.1% and 1.4% respectively in unitary countries. The possibility for state governments to borrow with fewer limitations imposed by the federal government help to explain this difference.
