Economics Department

Economic Survey of Belgium 2009: Improving fiscal federalism


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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of Belgium published on 8 July 2009.




Securing fiscal sustainability requires a reform of the fiscal federalism system

The devolution of spending responsibilities from the federal level to the sub-federal levels has left the federal government with the two main spending responsibilities of repaying public debt and financing the social security system. The increasing ageing costs will thus fall disproportionately on the federal government. The fiscal capacity of the federal government should therefore be strengthened by improving its revenue sources and by shifting some spending obligations to sub-federal levels of governments, such as the pensions of retirees from sub-federal levels of government.


The current transfer system does not align spending and taxing responsibilities

A factor behind the limited fiscal capacity of the federal government is the revenue sharing scheme. As sub-federal levels of governments have limited taxing powers, the scheme is equivalent to a transfer scheme with predetermined parameters. The scheme leaves sub-federal levels of government with relatively strong revenue growth, which together with the limited taxing powers create poor incentives for spending control. Thus, there is a need to realign spending and revenue raising responsibilities. Transfers are based on allocating personal income tax revenues to the region of residence, leaving workplace regions with no automatic or proportional compensation for providing infrastructures and other services to commuters, creating horizontal imbalances. To correct for these imbalances in the system, the revenue sharing scheme could include a workplace element.

The organisation of the federation is not promoting public sector efficiency

In principle, the devolution of federal responsibilities to regions and communities helps to better tailor public services to the needs and preferences of the recipients. In addition, it enables some elements of benchmarking between jurisdictions, providing an incentive for improving public spending efficiency. In practice, the devolution in Belgium has created overlapping responsibilities in areas such as employment, R&D, training, energy and environmental policies. This has in a number of cases led to diseconomies of scale, resulting in institutional complexity and fragmentation of policies. This may help to explain why Belgium has benefited less from improved public spending efficiency through devolution than other countries. Policy coherence and the spending efficiency of sub-federal governments should be improved. This could include: improving labour market activation policies by applying best practices nationwide; evaluating R&D policies to select and implement the most effective ones; pursuing best practices to ensure the provision of high quality education across the country, including greater freedom for using economic instruments (tuition fees and income contingent loans); in the area of environmental policies merging the regional markets for green certificates to create a single pan-Belgium market; and in energy policies reviewing the current multi-layer and multi-regulator structure to enhance the allocation of responsibilities. A political consensus for such a reform may be easier to achieve if reforms were perceived as a means to increase public sector efficiency rather than redistributive changes.


Fiscal developments of the federal government and of Regions and Communities
Percentage of GDP


1. Excluding social security.
2. Excluding transferred taxes.
Source: National Bank of Belgium.

Revenue sources of regions and communities



Source: National Bank of Belgium, calculations by the OECD.


How to obtain this publication


The complete edition of the Economic Survey of Belgium is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.


Additional information

For further information please contact the Belgium Desk at the OECD Economics Department at

The OECD Secretariat's report was prepared by Jens Hoj and Tomasz Kozluk under the supervision of Pierre Beynet. Research assistance was provided by Sylvie Foucher.




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