Fiscal decentralization plays a critical role in enhancing the efficiency and equity of public service delivery, as well as strengthening overall fiscal management. Recognizing this, the OECD Network on Fiscal Relations Across Levels of Government—commonly referred to as the Fiscal Network—advocates for a strategic and evidence-based approach to the devolution of fiscal powers and responsibilities. This involves ensuring that subnational governments are equipped with adequate resources, functional autonomy, and the right incentives to effectively meet the diverse needs of their communities.
By enabling more responsive, accountable, and context-specific public services, this approach contributes to stronger governance outcomes and more resilient fiscal frameworks.
The Fiscal Network provides a key platform for international policy dialogue, analytical exchange, and cooperation on issues of fiscal decentralisation and intergovernmental fiscal relations. Bringing together policymakers, academics, and practitioners from across OECD and partner countries, the Network seeks to strengthen the efficiency, equity, and stability of multilevel fiscal systems by facilitating cross-country comparisons and the dissemination of best practices.
Recent Trends in Subnational Fiscal Autonomy
Recent data from the OECD Fiscal Decentralization Database highlights significant challenges related to the fiscal autonomy of local governments across EU member states. Despite formal decentralization frameworks, many local governments remain heavily dependent on central transfers, with limited authority over tax policy and revenue generation. This structural imbalance undermines the capacity of subnational authorities to tailor public services to local needs, engage in long-term investment planning, and respond flexibly to fiscal shocks.
These findings underscore the need for a renewed policy focus on strengthening genuine fiscal autonomy, including reforms in own-source revenue mobilization, intergovernmental transfer design, and expenditure assignment. Addressing these gaps is essential for empowering local governments and advancing the broader goals of fiscal resilience, democratic accountability, and inclusive territorial development.
Some recent data indicates a serious situation with regard to the fiscal autonomy of local governments in EU countries. The data was presented in the OECD Fiscal Decentralisation Database which provides a very comprehensive assessment of the fiscal situation of local governments among the countries of the region.
A good summary of the key points of the data is provided in the following:
- In Europe the average share of own tax revenues of total local revenues is 32.1%: in 8 out of 26 countries, tax revenues represent only a small share of the local budgets, accounting for less than 20% of local revenues. Estonia, the Czech Republic, Lithuania, the Slovak Republic, the Netherlands, Ireland and Austria are the countries with the lower share of less than 15% tax revenues at local level. Among the other 18 countries, Iceland, Sweden, Switzerland and Spain have the highest share (above 55%): tax revenues account for 78.8% (Iceland), 60.2% (Sweden), 58.8% (Switzerland) and 58.2% (Spain) of local revenues.
- For intergovernmental transfers the data indicates that the average for the OECD-European countries is 49.8%, which shows a strong dependence of local governments on intergovernmental transfers: in 13 out of 26 countries transfers from other levels of government represent the largest share of the local budget, accounting for 50% or more of local revenues. Lithuania, Estonia, the Slovak Republic and the Netherlands are the countries with the highest share of intergovernmental transfers with 87.9%, 85.8% 77.8%, and 74.7% respectively. Among the other 13 countries, Iceland and Switzerland have the lowest share: intergovernmental transfers account for 8.8% (Iceland) and 10.5% (Switzerland) of local revenues. It is important to stress that intergovernmental transfers can also include shared taxes and, in some countries (e.g. Italy), regional budgets, too.
- Data show that at European level, several of the countries are rather centralized and local governments do not have much autonomy. In terms of fiscal autonomy, it can be seen that a high percentage of local budgets comes from intergovernmental transfer, which means that most local governments are fiscally dependent on the central level: the average for the OECD European Countries is 49.84%.
See more here: https://www.kdz.eu/en/news/blog/european-local-government-finances-and-local-autonomy
Is the property tax key to greater revenue autonomy?
The local governments of EU countries continue to be highly dependent on the shared taxes, particularly PIT and VAT, for their revenues and transfers, with little local autonomy and potential to increase these sources. The only potentially source of increased local own source revenues is the property tax that is very underutilized in the EU countries.
The question then becomes is there potential for increasing the property tax collections from local property ownership. A key indicator of the potential is the percentage of home ownership in these countries. A review of the home ownership in the countries with lowest revenue and those with the highest share of local revenue indicates there is considerable potential to increase property taxes as a much greater source of local government own source revenues. The following tables demonstrate that for all these countries the percentage of home ownership is greater than 60%, except for Austria and Switzerland (Ratio of owner-occupied units to total residential units).
| Estonia | 80.7 % of Home Ownership |
| The Czech Republic | 76 % |
| Lithuania | 88.8% |
| The Slovak Republic | 93.6% |
| The Netherlands | 70.2% |
| Ireland | 69.4% |
| Austria | 54.3% |
| Iceland | 75% of Home Ownership |
| Sweden | 64.9% |
| Switzerland | 42.3% |
| Spain | 75.3% |
For further comparison, the ownership ratio for the USA is 65.7%, UK is 65.2%, and Canada is 66.5%. These countries utilize the property tax as the main source of own source local government revenue.
The potential to increase local revenue through property taxation may be measured by examining the ratio of the local property tax revenue to the GDP. While GDP is not a particularly good measure and may be volatile over time, it is one measure that is available for comparison. The tables below indicate that the use of property tax as a percent of GDP is low across all these countries examined, except for Iceland and Spain (Data on tax sources by countries: Revenue Statistics 2023).
| Estonia | 0.2 |
| The Czech Republic | 0.2 |
| Lithuania | 0.3 |
| The Slovak Republic | 0.5 |
| The Netherlands | 0.7 |
| Ireland | 0.3 |
| Austria | 0.2 |
| Iceland | 1.8 |
| Sweden | 0.4 |
| Switzerland | 0.8 |
| Spain | 1.4 |
In comparison, local property tax as a percentage of GDP is much higher in Canada at 3.1%, UK at 1.8%, and the USA at 2.8%.
The fiscal impact of homeownership on local government’s own source revenues?
A great deal more research and data should be analyzed to determine what the total fiscal impact would be on increasing the local government’s own source revenues. But the above would tend to indicate that there is a lot of headroom for EU countries to increase local government revenues through greater use of the property tax.
The EU countries have the choice then of keeping the present architecture of local government finance and forget about increasing these revenues and local fiscal autonomy or going toward the UK/USA/Canada model with emphasis on property taxes.
The question then is what is keeping the EU countries from transitioning to the fiscal system that support this. There might be two reasons. First is the political electoral system and the second is the tax culture in these countries.
In most EU countries, local councils are elected through proportional representation systems, typically using party lists. This electoral framework ensures broader political representation at the local level, as confirmed in the Council of Europe’s report “Electoral Systems and Voting Procedures at Local Level”.
The way to become a local mayor or councilor is then to pledge loyalty and support to the party apparatus that control the selection process and has control from the central down to the local level. No local mayor or councilor is likely to want to break from the central party authority and support some options that are not supported by the party leadership, which are generally those that are members of the parliament or central government ministries.
Second, there is lack of taxpaying culture and seeing the connection between the tax’s citizens pay and the services they receive. The use of the tax sharing approach breaks the link as the people pay taxes to the central government and don’t see how that money comes back to the local government to pay for services. This disconnect is enhanced since the local councils have no authority to determine the tax rate and sharing basis.
Along with this is the taxpaying culture that people don’t like to be taxed on what they cannot hide or evade. Tax evasion across EU countries are estimated to be in the range of €750 billion and €900 billion in the EU with as much as 47% of GDP in Denmark. Personal income and informal economy income can be hidden, but it is difficult to hide property. The prevalence of offshore hidden wealth coming from personal income in some cases is quite high. According to the Tax Observatory, “Germany, the UK, France and Italy account for the largest part of the absolute wealth hidden offshore, while Cyprus, Malta, Portugal and Greece have the highest share of wealth hidden offshore in % of GDP”, according to Statista.
Since both of these problems are unlikely to change in the near term, the potential for increasing the use of the property tax for local governments is problematic. The EU countries local governments will continue to have a low level of own source revenues and a high level of dependence on central government transfers.
This blog, authored by Glen Wright (Co-Chair, LPSA ECA Regional Working Group) in April 2025, seeks to explore the potential for increasing local government revenues in EU countries through greater use of property taxes, analyze the relationship between homeownership rates and property tax capacity, and examine the political and cultural barriers that hinder fiscal decentralization and the enhancement of local fiscal autonomy.
