Project objectives
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The objectives of the project, led by the OECD and co-financed by the European Commission, are:

• Better understanding of the requirements/incentives attached to public investment funds, notably its strengths and weaknesses, in the context of a particular stringent fiscal consolidation environment.
• Better diagnosis of sub-national governance capacity challenges and better understanding the mechanisms that can strengthen sub-national governance capacities, for improved regional/local development.
• Policy recommendations and a toolkit of guiding principles for effective public investment at sub-national level, discussed and validated by the network of partners and the OECD Territorial Development Policy Committee (TDPC).

Restoring growth is a top priority for all policy makers, and public investment will play a critical role in achieving this goal. Since the introduction of fiscal consolidation programmes, "doing better with less" has become a critical imperative for public investment across levels of government. Given that the majority (66% on average across OECD countries) of public investment resources are implemented by sub-national levels of government, they have a critical role to play in restoring growth prospects (Figure 1).

Multi-level governance tools and policies need to be identified and strengthened to increase the efficiency and economic impact of public investment.

Source: OECD National Accounts (2010).

Sub-national capacity building
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Capacity development for sub-national governments to implement regional development policies represents a major challenge, not only for lagging regions, but for all OECD regions. Yet little has been done to address it until now.

Sub-national capacities are often considered both as bottlenecks for making the most of regional policies and as “intended externalities” of those policies. This intended externality is sometimes considered as the most important long-term outcome of regional policy (and of cohesion policy in EU countries).

Therefore, providing measures of sub-national capacities, identifying policies that strengthen them and monitoring the progress towards expected objectives are critical elements of any attempt to enhance results of regional policy in terms of economic growth, sound governance, and citizens’ well-being.

Challenges in capacity building have to be analysed in correlation with the degree of autonomy that sub-national governments have in public decisions and spending; which depends on a series of factors such as their size, allocation of competences, regulation, existence of standards in public investment and services delivery.

This part of the project would focus on two broad challenges:

• Development of a comprehensive approach to the evaluation of sub-national (or national when country size is very small) policy-making and governance capacities;
• Analysis of the different types of policies and reforms at the national and sub national levels which contribute to enhance sub-national capacities.

Methodology
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In addition to reviews of the literature and previous analyses and surveys on the topic, the gathering of information for the two pillars of the project will be done through different channels:

• National questionnaires to all OECD countries. A questionnaire circulated to member countries would result in a national perspective on the effectiveness of public investment at sub-national level in times of tight fiscal constraints. Access the Questionnaire Multi-level governance of public investment.

• Case studies: 8 case studies will be developed in depth. The selection of case studies will be based both on quantitative and qualitative criteria. These in-depth case studies would be complemented by other regions/countries on which the OECD is currently working. Access the OECD Regional Questionnaire: Effectiveness of public investment at sub-national level in times of fiscal constraints.

• Selection of policy fields. In order to improve the comparability opportunities between these different cases, the analysis could focus on a limited number of policy fields, such as public transport, innovation/R&D, or water for example. Examples from other policy fields will be considered when their performance is acknowledged and can serve as a good practice reference.

• The project will benefit from the establishment of a network of partners (experts and officials at national and/or sub national levels) to share experiences and identify good practices (including both OECD members and non-members). Specific workshops/roundtables on the effectiveness of public investment at sub-national level in times of tight fiscal constraints will be organized among local, regional and national stakeholders.

• The analysis will also require a series of country missions to conduct interviews with relevant stakeholders and prepare relevant case studies.

Purpose of the case studies
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• The case studies’ will examine multi-level governance of public investment in depth. The studies will be used to understand the role of governance factors in the success (or shortcomings) of public investment policy. Emphasis will be placed on identifying, understanding, and drawing lessons from both “success stories” and challenges in different countries and different regions.

• Attention will be given to: (i) the type of sub-national capacities deemed to be a priority for effective public investment; (ii) the key co-ordination mechanisms for promoting vertical and horizontal co-ordination at different levels of government; and (iii) the national conditions that set the "enabling environment" for public investment in a multi-level context.

Final case studies reports
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Final case study reports are now available for the 7 case studies that were carried out:

• Brandenburg, Germany
• Skane, Sweden
• British Columbia, Canada
• Galicia, Spain
• Wielkopolska, Poland
• Basilicata, Italy
• Victoria, Australia

Key issues to be analysed
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Critical Sub-National Capacities for effective public investment

• Strategic planning and investment prioritisation
• Strategic resource management, budgeting practices
• Engaged citizens and firms
• Public sector capacity
• Monitoring and evaluation
• Integrity and transparency
• Multi-level regulatory framework for public investment

Critical co-ordination mechanisms for better multi-level governance 

• Vertical co-ordination
• Horizontal co-ordination
• Contractual design and enforcement

Project Milestones
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Questionnaires sent to countries and regions: First quarter 2012,
Case studies: Q1-3 2012,
Workshop : 2-3 July 2013, Paris, OECD headquarters
Final Report: Q4 2012
Final publication: Q1 2013

Related OECD Documents & Publications
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• Making the Most of Public Investment in a Tight Fiscal Environment
• Multi-level governance of public investment: Lessons from the crisis (working paper)
• Governance of Public Policies in Decentralised Contexts: The multi-level approach (working paper
• Implementing investment recovery strategies across levels of government: A few lessons from the crisis (Powerpoint presentation)

Related reading
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• Institutional and Fiscal Relations across Levels of Government 2012
• Regional Outlook 2011
• Fiscal Federalism Network   
• Government at a Glance 2011
• OECD Regions at a Glance 
• Restoring Public Finances 2011 
• Water and Multi-Level Governance
• OECD work on Multi-level Governance

Contact
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• Dorothée Allain-Dupré  dorothee.allain-dupre@oecd.org 
• Cathérine Gamper catherine.gamper@oecd.org
• William Tompson william.tompson@oecd.org