GOLD Report I - UCLG

EUROPE140United Cities and Local GovernmentsIn most Europeancountries localpublic expenditurevaries in realitybetween 6 % and13 % of GDPresources must be in line with the costsassociated with the duties conferred uponlocal authorities by law; the authoritiesmust be able to dispose freely of theresources allocated to them; and theymust have certain powers to determinethe level of their own resources.However, despite the abundance of nationaland international sources, carrying out aninternational comparison of local governmentfinancial systems presents real difficultiesof methodology and interpretation,even in Europe. In the following study, regionalautonomies have been treated as similarto federal entities and have thereforenot been considered as local authorities,contrary to how certain international sourceserroneously represent them.local public expenditure for countries withthree tiers of local authorities (France,Poland). Despite these approximations, thechart reveals three fairly distinct nationalgroups:• Three Nordic countries (Denmark, Finland,Sweden) and Switzerland, whoselocal public expenditure is greater than20% of their GDP;• a large group of countries whose localpublic expenditure varies in realitybetween 6% and 13% of GDP: in factin Italy, the expenditure of local councilsand of their consortia, and of theprovinces, was around 6.3% of GDP in2003; in the same year such expenditurein the Netherlands was 8.5%;12. See above :footnote 2.Analysis of major trends concerning expenditureand resources reveals the growingrole of local authorities in Europe(Dafflon: 2002; Travers: 2005). However,this increase in importance is often accompaniedby a reduction in financial autonomy.III.1.1. Local authority expenditureThe following chart shows the proportionof each nation’s GDP that is allotted tolocal public expenditure, based on figurespublished by Eurostat. The term local publicexpenditure refers to the expenditureof local public authorities; that is, intranationalauthorities with the exception offederal entities and regional autonomies 12 .Note that although Spain is treated as afederal state, Italy is not, despite high levelsof powers and responsibilities for publicspending, as well as legislation devolvedto the Italian regions. The same applies tothe United Kingdom with respect to Scotlandand Northern Ireland. Wales couldalso reasonably be included in the matterof public finances because of the volumeof expenditure devolved to it. Althoughthe European states usually have one ortwo tiers of local authority, the tableslightly overestimates in comparative terms• a small group of countries in whichlocal public expenditure is less than5% of GDP: Greece, Cyprus, YugoslavRepublic of Macedonia and Malta.In the median group, there is a continuumin which it is nearly impossible to place athreshold. But below 8% or 8.5% of GDP,we find only fairly small countries maintaininga certain financial centralization,along with the federal states and stateswith autonomous regions (insofar as partof the expenditure borne by the localauthorities in the unitary states is paid forout of regional budgets.)However, the amount of expenditurealone is not enough to characterizefinancial autonomy. Functional independencealso depends on how much discretiona local authority has to allocateand commit its expenditures, and tomanage its resources.Chart 2 shows local authority capital expenditureas a percentage of GDP. Thisindicator helps show the role played bylocal authorities with respect to the flowof capital investment. It relates only tothe Europe of the 25, as there is insufficientdata for the other countries. In the