Managing rising subnational fiscal risks
Subnational governments face a range of fiscal risks, defined as events whose realisation
leads to significant deviations of revenue and/or expenditure from budgeted amounts.
Fiscal risks reflect unforeseen macroeconomic developments, as well as structural
shifts in the economy, including digitalisation and climate change. Sound management
of these risks requires a comprehensive framework involving their identification,
analysis, mitigation, sharing or transfer, and prudent accommodation. Within this
framework, subnational governments need to strengthen their capacity to manage their
own risks, but national governments also have a role to play. This includes mitigating
risks created by national policies, minimising moral hazard in supporting subnational
governments affected by exogenous shocks, and using their legislative powers to avert
excessive subnational risk-taking. Effective intergovernmental cooperation is key
to the sound management of subnational fiscal risks. The paper discusses how different
levels of government can work together in applying this framework to the main types
of risks. It also provides some examples of good international practices in the management
of risks.
Available from June 13, 2024
In series:OECD Working Papers on Fiscal Federalismview more titles