D EVELOPMENT OF A NEW CORRECTIVE AND COMPENSATORY MECHANISM FOR LOCAL GOVERNMENTS IN P OLAND SOSE S.p.A Fare clic per modificare Warsaw, 4 October 2017 lo stile del titolo
L ET US START FROM THE P OLISH EQUALIZATION SYSTEM
THE CURRENT P OLISH SYSTEM OF FISCAL EQUALIZATION ( MUNICIPALITIES ) 2478 Municipalities => Two equalization subsystems Vertical system mainly based on revenue equalization, grants are distributed to local authorities with: • tax revenues below 92% of the national average • population density below the national average Horizontal system based on revenue and expenditure equalization • Payments made by local authorities with tax revenues above 150% the national average • Grants distributed to all local authorities according to: o historical expenditure (housing) => 75% o historical revenues (PIT, agricultural tax, forestry) => 25% 3
DYSFUNCTIONS OF THE CURRENT P OLISH SYSTEM AND POSSIBLE SOLUTIONS Judgment of the Constitutional Court => Violation of Art. 1 (par.1) of Polish Constitution Jednostkom samorz ą du terytorialnego zapewnia si ę udział w dochodach publicznych odpowiednio do przypadaj ą cych im zada ń . After the equalization some local authorities may remain with an amount of resources not sufficient for the provision of their fundamental local services. Problems related to the horizontal adjustment mechanisn • Excessive depletion of own resources • Grants recipients are not necessarily poorer than contributors • Special needs of large cities are not considered (seasonal population inflow) • Reversing of the ranking of local authorities after equalization Problems related to the existance of two separate sub-systems in the equalization mechanism • No transparency in the flow of inter-governmental grants Solutions that can be taken from the Italian experience • Evaluation of standard expenditure needs using econometric methods (Regression Cost Base Approach) • Single equalization mechanism based on the difference between revenue raising capacity and expenditure needs => equalization of the fiscal gap • Revision of fiscal capacity? 4
S TRONG AND WEEK FEATURES OF THE I TALIAN MODEL IN THE LIGHT OF THE FISCAL FEDERALISM LITERATURE Main drowbacks of fiscal Solutions adopted by the Italian model equalization systems RTS method for the evaluation of fiscal capacity • Revenue equalization can reduce • All sub-central taxes are included in the computation of fiscal and/or distort the jurisdiction’s tax capacity effort • Local fees are standardized through a regression method • RCA approach for the evaluation of standard expenditure needs Cost equalization can inflate • Complex system complemented with higher transparency expenditure needs and invite rent (opendata) • seeking The task of producing the distribution formula is assigned to an independent agency • Close-end system Two-stage budget procedure, whereby the overall budget for • Fiscal equalization can put pressure on equalisation is determined the budget (centrl gov. and local gov.) before the distribution formula is negotiated among sub-central and can be pro-cyclical governments • Marginal equalization rata at 50% Both revenue and expenditure are standardized • • Equalization of the fiscal gap Lack of incentive in increasing local • Efficiency elements in the evaluation of standard expenditure government efficiency and • Online publication of expenditure and performance indicators accountability (naming and shaming) 5
POLAND VS ITALY S TRUCTURE OF SUBNATIONAL GOVERNMENTS • Poland and Italy show a very similar structure of Subnational Governments • Very similar subnational governments responsibilities in the two countries, we noticed the following differences: • In Poland municipalities have more responsibilities in the Education and Health care sector • In Italy municipalities have more responsibilities in the Local police sector • In Italy regions have full responsibilitiy of the Health care service 6
POLAND VS ITALY D ECENTRALIZATION (1) Source: OECD Global Observatory on Local Finances 7
POLAND VS ITALY I NTER - JURISDICTIONAL GDP INEQUALITY Source: OECD “Fiscal federalism 2014 Making decentralization work” 8
EVALUATION OF MUNICIPAL STANDARD EXPENDITURE NEED
SOSE APPROACH TO THE EVALUATION OF STANDARD EXPENDITURE NEEDS SOSE METHODOLOGY RELIES ON FOUR MAIN PILLARS : BUSINESS DATA INTELLIGENCE METHODOLOGIES GOVERNANCE MODELS (questionnaires, (econometric models (third party role existing data-base, (opendata and and efficiency between central and data cleaning) information analysis) local gov.) dissemination) 10
11 euros per capita 1.000 1.500 2.000 2.500 3.000 500 0 below 500 below 1.000 EXPENDITURE COMUNI below 2.000 below 3.000 Current expenditure below 5.000 Population brackets below 10.000 Capital expenditure below 20.000 below 60.000 below 100.000 below 250.000 below 500.000 above 500.000
DATABASE CONSTRUCTION I NFORMATION FLOW Standard expenditure needs web portal Questionnaire project opendata.sose.it/fabbisognistandard/ Local authorities: 6.700 Municipalities 220 Unions 86 Provinces SOSE also verifies accurately the quality of data Official sources Budget sheets 12
STANDARD EXPENDITURE NEEDS FISCAL EQUALIZATION AND BENCHMARKING Italy condominium Navigational compass … resource management is …. possibility to measure handled through a system of the level and the quality of coefficients and not to the local expenditure negotiations of the different (efficiency) members against a benchmark 13
THE MAIN TECHNIQUES AND THE ITALIAN CHOICES Methods for the evaluation of expenditure needs Actual expenditure needs Uniform per capita expenditure Standard Representative Expenditure Expenditure System (RES) Regression-based Cost Needs Approach (RCA) => Italian model = + + + α α α α X X ... X ... X Standard expenditure ( y ) 1 1 2 2 i i n n � a are weights in euros and X are context variables Expenditure function (e.g. population by age) � a are standard cost and X are service variables (e.g. tons of waste Cost function disposed and recicled, school meals, elderly people assisted in residential care etc..) In all cases a are parameters estimated using a linear regression models 14
THE THEORETICAL FRAMEWORK ( REGRESSION COST BASE APPROACH ) SUPPLY SIDE DEMAND SIDE COST FUNCTION DEMAND FUNCTION y = s(g s , g e , p , A ) g e = d( Q , R , y) = total service cost y g e = endogenous output g s = exogenous load factors Q = demand control variables (preferences) g e = endogenous output R = income p = input prices = service cost y A = supply control variables (total factor productivity) Output function Expenditure function ( reduced form of the demand function ) ( reduced form of the cost function ) g e = h(Q, R, p, A, g s ) y = f(Q, R, p, A, g s ) p = input princes A = supply side control variables 15
THE THEORETICAL FRAMEWORK SUPPLY SIDE SUPPLY SIDE Benchmark of expenditure COST FUNCTION • Evaluation of the y = s(g s , g e , p , A ) allotment ratio of standard expenditure = total service cost y needs g s = exogenous load factors g e = endogenous output • Main pillar of the new p = input prices equalization system A = supply control variables (total factor with the fiscal capacity productivity) • Distribution of 100% of Expenditure function grants, Fondo di ( reduced form of the cost function ) Solidarietà Comunale y = f(Q, R, p, A, g s ) in 2021 16
SUMMARY OF DETERMINANTS OF STANDARD EXPENDITURE NEEDS Homogeneous group of 2016 Methodology variables 19 Variables generates No. of variables % impact TOTAL 85 (40 from questionare) 100 90% of standard expenditure Service provided 23 28,68 Main variables: Regional effect 15 20,87 Territorial morphology 6 11,08 • Resident population Resident population 4 10,71 • Waste disposed • Waste recicled Input prices 8 5,20 • Population above 65 Vehicles and road traffic 5 4,88 • Population between 3 and 14 Local economy 3 4,61 • Nursery served children Buildings and real estate 1 2,93 • School meals • Presence of Metro/Tram Census 2 2,67 service Exogenous load factors 5 2,08 • Surfice area of the Managerial choices 8 2,11 municipality Tourism 2 1,87 • Altitude of the municipality Investments 1 1,31 Deprivation 2 0,99 17
THE ESTIMATION OF STANDARD EXPENDITURE NEEDS – THE ALLOTMENT RATIO Expenditure needs Nursery Local public services transport 4% 3% Functions Billion euros Local police Waste 7% management Waste management 8,66 25% Central administration 7,04 Planning and public roads 4,76 Education 14% Social care 4,75 Education 4,72 Local police 2,43 Central Nursery services 1,48 Social care administration 14% 20% Local public transport 1,04 Planning and Total 34,88 public roads 14% • Eventually, standard expenditure needs are converted in an allotment coefficient according to the weight of each function in terms of standard expenditure • To compute the amount of equalization grants, the allotment coefficient of each municipality is multiplied by the macrobudget and compared with its fiscal capacity 18
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