Across the OECD, GDP per capita is converging. In contrast, regional disparities – or differences in GDP per capita across jurisdictions – are rising, mainly as a result of widening productivity differences. Fiscal decentralisation could help reduce them again.

1. REVENUE DECENTRALISATION AND
REGIONAL CONVERGENCE
Hansjörg Blöchliger
Head of the OECD Fiscal Federalism Network
www.oecd.org/economy/public-finance/does-fiscal-decentralisation-foster-regional-convergence.htm

2. Countries are converging, but regions are
diverging

3. Productivity differences are the main drivers
of differences in regional GDP per capita
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Activity rate
Productivity Employment rate
Note: data for 2013; coefficient of variation of each component

4. Increases
disparities
Less endowed
regions will suffer
– no level playing
field for
competition
“Race to the
bottom”
Corruption at the
local level
Decreases
disparities
Political
economy/public
choice
Incentive for
growth-enhancing
policies
Larger potential of
endogenous
growth in poor
regions
Can fiscal decentralisation underpin regional
convergence and reduce disparities?
Theory does not
provide clear
guidance

5. OECD: Revenue decentralisation reduces
disparities, but vertical fiscal imbalance (or
transfers) increase them

6. Lagging regions benefit more than leading
regions from tax decentralisation
Growth regression
• 2 sub-samples: top 25 percentile of output distribution
and bottom 25 percentile of output distribution
• Impact on annual growth rate of GDP pc
Tax
decentralisation
Positive and significant impact
only on annual bottom 25th
percentile
Fiscal authority
Positive and significant impact
only on annual bottom 25th
percentile

7. 1. Revenue decentralisation reduces regional GDP
disparities, while the vertical fiscal imbalance (or
transfers) increases them.
2. As such, regions should fund spending with own
revenue.
3. Revenue decentralisation favours catch-up of
lagging regions. “Race-to-bottom” hypothesis not
confirmed.
Main conclusions

8. More Information…
OECD
OECD Economics
Disclaimers:
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without
prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
8
www.oecd.org/economy/public-finance/does-fiscal-decentralisation-foster-regional-convergence.htm