Public finance and fiscal policy

Economic survey of France 2007: Meeting the challenges of decentralisation

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 5 of the Economic survey of France published on 27 June 2007.

Contents                                                                                                                           

The different levels of local government have progressively been given responsibility for implementing, and in some cases formulating, a significant part of policy on poverty, education and population ageing, as well as in other areas. This “decentralisation” can take two contrasting forms: transfer of full responsibility for a given function; or transfer of the implementation of a public policy for which the State sets the specifications. In practice, there is a continuum of situations in which responsibilities are shared between the State and sub national governments. Ideally, each case should reflect an appropriate trade off between the need to make local authorities accountable to their electorates for framing and implementing effective local policies, and a desire for services that are of identical quality nationwide, and thus specified by the State. Decentralisation in France is partly the result of one off decisions, taken without full consideration of this trade off, and this has led to a number of inefficiencies. To achieve the hoped for gains in the cost effectiveness of government spending, the division of responsibilities between the State and sub national governments should be gradually stabilised and clarified with a view to enhancing accountability. Unlike central government outlays, spending by lower level authorities is not subject to rules to assign objectives nor to produce performance indicators. To stimulate competition through information and facilitate policy evaluation, a system should be developed to give taxpayers readily accessible information on the expenditures of sub national governments, how they are financed and the quality of services rendered, as recommended by a number of recent reports submitted to the government.


The State also intervenes in local taxation by granting tax exemptions to certain kinds of households or businesses, and then compensates with offsetting financial transfers. As a result, own tax revenue has shrunk in relation to sub national governments’ total resources, loosening the ties between citizens and their elected officials and making those governments less accountable. Functions lying essentially with sub national governments should be financed by local taxes, and State granted exemptions from local taxes should be gradually eliminated. Services over which sub national governments have little decision making power could be funded by transfers from the State, but with mechanisms that encourage those governments to pursue efficiency goals. The use of financial transfers from the State should be refocused on the objective of equalisation to offset inequalities between lower level entities, which will be greater if responsibilities are financed to a greater extent by local taxes. Any other intervention by the State should be limited to situations where there are clear cross jurisdictional externalities.


The system of sub national governments is complex, comprising three main levels with no hierarchical relationships among them. Each level has wide powers within its borders, leading to a number of overlapping responsibilities. Added to this are multiple forms of co operation between municipalities, most recently “intercommunality”, intended to improve efficiency but often not achieving it. On the contrary, this complexity lies at the root of a number of inefficiencies which should be corrected if decentralisation is to yield its full benefits. From the pure efficiency perspective, reducing the very large number of municipalities (36 500) would be a useful step. In its absence, overlapping responsibilities should be limited by gearing the system towards greater specialisation by the various levels of sub national government, thus limiting the “general powers” principle, and appointing “lead managers” to take responsibility in each domain. Lead managers already exist in a number of areas; they must be given the responsibilities and the powers needed to implement effective policies. The State intercommunality grant, intended to encourage cooperation but in practice also encouraging spending, should be time bound, giving a stronger incentive to exploit available economies of scale. In the longer term, the State could consider implementing a single consolidated grant to be distributed by the “intercommunality” groupings and the communes according to the tasks for which they are actually responsible. But this could weaken citizens’ control over decision making, since those in charge of running these groupings are not directly elected at the moment, and decisions on allocating resources would be difficult.

 

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. The complete edition of the Economic survey of France 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the France Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Paul O'Brien and Stéphanie Jamet under the supervision of Peter Jarrett.

 

 

 

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