From an OECD comparative perspective, Portugal is a unitary and much centralised State, clearly influenced by the model of public administration. Portugal has basically only two layers of government, with the exception of the two autonomous regions of Madeira and Azores, of which the 308 municipalities form the core of the local government. The creation of administrative regions in the Continental territory of Portugal, which is contemplated in the Portuguese Constitution of 1976, has never materialised. A referendum on regionalisation failed in 1998. Two decades later, the Portuguese government continues to face recurrent challenges of economic development and territorial cohesion. Recently, decentralisation reforms emerged again on top of the policy agenda with two main objectives: by assigning more tasks to municipalities and by strengthening regional level governance.

The purpose of this report is to present international and OECD trends on both decentralisation and regionalisation, and to discuss the expected effects of these reforms and the conditions under which they may deliver more economic efficiency and regional equity. The study is based both on economic research and best policy practices. This analysis and information can be useful to contribute to the current policy debate in Portugal about decentralisation and regionalisation.

At first glance, the Portuguese model of multilevel governance does not seem to differ much from the systems practised in most other countries. However, Portuguese municipalities, parishes (freguesias) and intermunicipal co-operative units, which currently form the subnational government in Portugal, have much less spending and revenue powers than most of their peers in other EU countries. Therefore, the Portuguese multilevel governance system appears quite centralised compared with other European and OECD countries.

This section provides a brief description of the main types of decentralisation. Both the key benefits and challenges of decentralisation are discussed. In addition, the chapter discusses the four main current trends in decentralisation: intermunicipal co-operation, metropolitan governance, regionalisation and asymmetric decentralisation. The chapter builds on both theoretical arguments and empirical observations concerning multilevel governance.

This chapter discusses four main ways that can be used to strengthen regional-level decision-making: i) deconcentration of central government service delivery, ii) intermunicipal co-operation, iii) regional decentralisation and iv) establishing regions with elected self-government and fiscal autonomy. The chapter also describes reforms that have been carried out in European Union (EU) countries. A more detailed description is provided for regional reforms that have been carried out Finland, France and Poland. These countries provide interesting examples of different solutions to similar challenges.

This section is divided into two main parts. The first part describes and analyses the current decentralisation policies in Portugal. The second part focuses on the regional development policies. Both sections identify a number of challenges in these policy areas. For decentralisation policies, one of the main challenges is the low degree of spending and revenue powers devolved to subnational governments, because this limits the benefits received from decentralisation. Other challenges include the unclear role of inter-municipal co-operation, the volatility of some of the municipal tax bases, and the overlapping assignments between deconcentrated central government units. From the regional development policy perspective, the current challenges include the ability of CCDRs to catalyse a truly cross-sector and strategic approach to regional development, and the mismatches in geographic boundaries of deconcentrated Ministry branches.

This section starts by summarising some international experiences for a successful territorial and institutional restructuring. After this, the chapter presents three scenarios for enhanced decentralisation in Portugal. The scenarios presented in this chapter are by no means exhaustive, and should not be seen as pure alternative recommendations. In a sense, the alternatives are partly nested and complementary to each other. The options presented should be seen as basis for further discussion and possible further investigation.