ABSTRACT
Motivation Decentralization trends in OECD countries have generally led to increased investment spending at subnational government level. A number of indicators show an average increasing trend over the last 10-15 years, such as the share of total public investment spending2 at the subnational level3 that has been rising very slowly but steadily since 1995. Central government transfers to subnational governments have similarly steadily increased since 1995, by an average of 0.7 percent (Blöchliger and Vammalle, 2009). Sixty percent of total public spending on education, 40 percent on health, 30 percent on economic affairs, and 20 percent on social protection is spent at the subnational level across OECD countries (Charbit, 2011; OECD, 2011a). These averages hide not only considerable variations with generally bigger shares for subnational governments in federal countries, but can also not provide a full picture of changes in actual autonomy of governments at subnational levels. Generally speaking though, the crisis has led to the share of public investment to decline significantly in some federal countries (e.g., Austria and Switzerland), while increasing in some unitary ones (e.g., Norway) (Figure 12.1). Yet, independent of the institutional context, infrastructure investment entails intensive engagement across levels of government. Hardly any subnational infrastructure investment is carried out isolated at one level of government. Partial funding often flows from national or supra-national authorities into projects managed by subnational governments. Lower tiers of authority often help shape infrastructure priorities, and contribute to the financing. As a result, complex situations have been formed that require coordination across levels of government. Not only do the vertical interactions for infrastructure decisions, financing, and implementation have to be managed carefully to ensure all levels of government aim at convergent objectives and play by compatible rules. The management of infrastructure investment frequently also requires horizontal interaction, with other subnational jurisdictions, as projects may require a certain scale efficiency and may have positive (or sometimes negative) external spillovers which require joint design, financing, or implementation. Where policy makers seek to realize potential complementarities across sectors, it will also involve a second form of horizontal engagement-collaboration among actors and institutions responsible for different sectoral policies at different government levels.
