The paper explores interrelations between the fiscal situation of sub-national and central
governments, or – put differently – whether and how sub-national and central governments contribute
to each other’s fiscal difficulties. The first part of the paper examines sub-national government
policies that may negatively affect the fiscal situation of the central government. Based on a new
cross-country data-set at the level of individual regions, it examines structural factors that increase
the probability of sub-national entities accumulating amounts of debt that may ultimately turn out to
be unsustainable. The underlying idea is to explore to what degree such debt levels could result from
moral hazard-driven behaviour at the regional level. The second part of the paper examines whether
and how national governments hand the burden of fiscal adjustment down to sub-national levels,
mainly looking at examples from the wave of fiscal adjustments in the wake of the 2007-09 global
financial crisis.
Passing the Buck? Central and Sub-national Governments in Times of Fiscal Stress
Working paper
OECD Regional Development Working Papers
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Abstract
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26 October 2020
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