Fiscal equalisation and regional development policies
Is there a case for enhanced synergies?
Fiscal equalisation and regional development policies have often been perceived as
separate policy fields. As a result, little is known about their potential interactions
and implications for economic growth and welfare. This working paper reviews the two
policies, explores the potential for enhanced synergies between the two, and proposes
a theoretical framework linking them. The latter, which has not been empirically tested
yet, posits that if regional development policies are correctly designed and implemented,
their success should result in a drop of income disparities. Coupled with good governance
practices and a framework that clearly allocates responsibilities among levels of
government, more equal jurisdictions would find it easier to provide similar levels
of services with comparable tax rates across the country. Therefore, whilst correctly
designed and implemented fiscal equalisation policies remain a tool to patch gaps
that may occur due to the shifting variety of revenue potential and spending needs
of subnational entities, the need and the size of fiscal equalisation transfers could
be significantly reduced if regional development policies in place are effective.
This working paper concludes with a discussion on the benefits and challenges of enhancing
synergies between the two policies, opening the door for future in-depth research.
Published on November 08, 2023
In series:OECD Regional Development Papersview more titles