Subnational governments (SNG) represent a large share of public spending in most OECD countries. In 2012, SNG expenditure accounted for 17% of GDP and 40% of public spending in the OECD area.

Subnational governments (SNG) have a key role in public investment: SNG direct public investment represented 2% of GDP in the OECD area in 2012 (the direct public investment by all levels of government was around 2.7% of OECD GDP). This share is above 3% in Canada and Korea and less than 1% of GDP in Greece, Austria, Portugal, Iceland and the Slovak Republic ().

The financial and economic crisis led to a strong deterioration in both general government deficits and debt in most OECD countries. Falling revenues (due to the decline in economic activity and tax reductions designed to stimulate the economy) coincided with sharp increases in government spending (social transfers, stimulus measures or support for financial institutions).

In a great number of countries, subnational government (SNG) direct investment was particularly robust in the early years of the global financial crisis due to the involvement of SNG in stimulus plans and strong support from national governments. However, the deepening of the social and economic crisis as well as the adoption from 2010 onwards of national and local budget consolidation measures in response to the public finance crisis put severe strain on subnational governments’ finance. It ultimately led to a strong decline in investments across OECD countries. Between 2007 and 2012, SNG direct investment per capita contracted sharply in the OECD area (-7% in real terms between 2007-2012 and -15% in the three most recent years), in particular in Ireland, Iceland, Spain, Italy and Portugal ().