This paper reviews the fiscal relations between the three levels of government in Austria and points to the scope for reforming them with a view to improving the efficiency of the public sector. Key areas of public sector activity are subject to complex relations across the three layers of government. Fragmentation of decision-making in some spending programmes, such as hospital care and social assistance benefits, needs to be overcome, concentrating financing and spending responsibilities on one government level. Strengthening co-operation between municipalities as well as amalgamations of small municipalities would allow advantage to be taken of scale economies in the provision of local government services. Stronger tax-raising powers of the municipalities and the states, reform of tax sharing rules and improved budgeting procedures would raise the ability of sub-national governments to match the supply of services to local demand patters and improve accountability to voters.
This Working Paper relates to the 2005 OECD Economic Survey of Austria
(www.oecd.org/eco/surveys/austria)
