Grants systems in OECD countries: trends and some policy issues

Experts meeting on“General Grants Vs. Earmarked

Grants: Theory and practice”

Thursday September 17th, 2009

Camila Vammalle, Hansjörg BloechligerOECD

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Share of transfers in total government expenditure (2005)

2Source: National Accounts

Change in the share of transfers in government expenditure (1995-2005)

3Source: National Accounts

Change in SCG expenditure to total government expenditure ratio (1995-2005)

4Source: National Accounts

Change in SCG tax revenues on total government tax revenues (1995-2005)

5Source: National Accounts

Composition of Grants (2006)

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Note: the first line corresponds to state averages, the second line to local averages.Source: OECD Fiscal Decentralisation Database

Change in the composition of grants (2000-2006)

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Note: the first line corresponds to state averages, the second line to local averages.Source: OECD Fiscal Decentralisation Database

Some policy issues (1/4)

• Grants have an equalisation role Equalisation grants represent:

• 2.3% of GDP• 4.8% of total government expenditure• 55% of total intergovernmental grants

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Some policy issues (2/4)

• Grants may reduce externalities– Spending or tax– Horizontal or vertical

– Matching grants

– Are these externalities overestimated?

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Some policy issues (3/4)

• Earmarked grants may be used to fund specific policies– Such as: risk sharing, experimentation, co-

funding, addressing exceptional situationse.g.: Share of grants to SCGs in national stimulus packages:

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General Purpose Grants

Earmarked Grants

TOTAL Current Expenditure

Capital Expenditure

Australia - 0% 56% 56% Canada - 6% 78% 84% France - - 27% 27%

Germany - - 29% 29% Japan 33% - 18% 51% Korea - - 28% 28%

Norway 7% 2% 30% 39% Portugal - - 22% 22%

Spain - 1% 72% 73% United States* - - 13% 13% average (16) 2% 1% 23% 26%

Some policy issues (4/4)

• But grants may have unintended side effects– Reducing SCG tax effort– Putting pressure on spending, deficits

and debts

• Thus need a skilful grant design and combining grants with complementary instruments

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Thank you!

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