OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Local Public Finances and Municipal Reform in Finland
Finnish municipalities enjoy ample fiscal autonomy and provide or arrange the provision of a large share of public services. In recent years, their spending and debt has been increasing steadily, especially because of population ageing and increases in the cost of health care and social services. Furthermore, small municipalities are often struggling to align service provision with national standards. The government has launched a reform to create more efficient municipalities through voluntary mergers. Both international experience and costs per capita across Finnish municipalities suggest an optimal size for municipalities of over 20 000 inhabitants, at least outside remote areas. As mergers are to be voluntary, the outcome of the reform remains uncertain. If merger plans prove insufficient to achieve efficient public service provision, the government could impose mergers on smaller municipalities, especially around the main urban areas. Responsibilities of smaller municipalities could be scaled back in all functions where economies of scale and scope can be achieved. Policies also need to be flexible enough to allow restructuring of services after mergers. Partnerships between public or private entities to provide services could be developed further in some areas. Finally, the tax structure and fiscal rules should be enhanced to ensure long-term fiscal sustainability. This Working Paper relates to the 2014 OECD Economic Survey of Finland (www.oecd.org/eco/surveys/economicsurvey- finland.htm).
Keywords: local taxation, efficiency, decentralisation, fiscal equalisation, fiscal rules, local government, fiscal federalism, municipal mergers, public services
JEL:
H72: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Budget and Expenditures;
H42: Public Economics / Publicly Provided Goods / Publicly Provided Private Goods;
H41: Public Economics / Publicly Provided Goods / Public Goods;
H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government;
H75: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government: Health; Education; Welfare; Public Pensions;
H74: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Borrowing;
H71: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue;
H21: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Efficiency; Optimal Taxation;
H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession
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