The role of local governments in European public service delivery has expanded significantly over the past two decades. Across the European Union, municipalities have become central actors in the provision of education, healthcare, social protection, local infrastructure, and, increasingly, in the implementation of climate and digital transition policies. This expansion reflects broader trends in decentralization, subsidiarity, and place-based governance, whereby public policies are expected to be delivered closer to citizens and tailored to local needs.
Drawing on the European Local Government Report 2025, published by the KDZ – Centre for Public Administration Research, this article presents an analytical assessment of recent developments in EU-27 local government systems. It argues that the evidence points to a persistent structural mismatch between decentralized responsibilities and decentralized resources, raising important questions for fiscal sustainability and the effectiveness of multi-level governance.
Expenditure growth as evidence of functional expansion
One of the strongest messages of the report is the scale and persistence of local government expenditure growth. Between 2004 and 2024, local government expenditure in the EU-27 almost doubled, reaching €2.03 trillion. Over the same period, GDP also grew strongly, but local spending increased slightly faster than overall economic output. This pattern is visible in a majority of Member States and indicates a long-term expansion of local responsibilities.
Municipalities are increasingly responsible for implementing national and EU policy priorities in areas such as social inclusion, environmental protection, transport, local economic development, and digital infrastructure. In many Member States, this expansion has occurred even without explicit legislative reforms redefining competencies. The evidence therefore suggests a gradual functional shift toward the local level, including in countries traditionally characterized by stronger central control. In practice, local governments are assuming greater operational and investment responsibilities, regardless of whether formal decentralization reforms have taken place.
Overall, the evidence points to a structural shift: local governments are increasingly central to public service delivery, even in systems traditionally perceived as more centralized.
Cross-country variation and governance models
Despite common growth trends, absolute spending levels differ dramatically between Member States. In 2024, EU local governments spent, on average, €4,437 per resident, but this average mask enormous variation: Nordic countries stand out as clear outliers. Denmark, Sweden, and Finland record by far the highest local expenditure per capita and the highest local spending shares relative to GDP. In contrast, Malta, Cyprus, Greece, and Ireland show very low per-capita local spending, reflecting a limited fiscal and functional role for municipalities.
When measured as a share of GDP, local expenditure ranges from 0.4% in Malta to over 31% in Denmark, with a European median of around 9–10%. This illustrates that Europe does not follow a single model of local government, but rather a spectrum from highly decentralized welfare-state systems to strongly centralized administrative models.
Revenue dynamics and the structural fiscal gap
While expenditure growth has been widespread, revenue development has not always kept pace. At EU aggregate level, local government revenues also nearly doubled between 2004 and 2024 and broadly tracked GDP growth. However, this apparent balance hides a crucial structural issue: in many countries, revenues have grown more slowly than expenditures, creating persistent fiscal pressure. By 2024, local governments across the EU recorded an overall negative balance of −2.1%, meaning that spending exceeded revenues. Several Member States display particularly large and structurally embedded gaps, including Ireland, Hungary, Austria, Germany, France, and Bulgaria.
These gaps are not short-term deficits but reflect long-run divergences between expanding mandates and insufficiently adjusted revenue systems. Put simply, local governments are often tasked with doing more without being given adequate or flexible resources.
In contrast, a smaller group of countries—including Czechia, Latvia, Estonia, Spain, Portugal, and Poland—shows revenues growing faster than expenditures, suggesting more balanced intergovernmental arrangements.
Fiscal autonomy and the limits of partial decentralization
The report highlights local taxation as a key indicator of fiscal autonomy and accountability. Across Europe, the share of taxes in local government revenues ranges from below 5% to over 50%:
- Countries such as France, Latvia, Sweden, Croatia, and Spain rely heavily on local taxes, giving municipalities a stronger own-source revenue base.
- At the other end, many Central and Eastern European countries—as well as the Netherlands—combine moderate or high local spending with very low local tax shares, signaling strong dependence on transfers and shared revenues.
A general pattern emerges: countries where local governments spend more tend to rely more on taxes, but with notable exceptions. The Dutch case is particularly revealing—relatively high local spending accompanied by very low tax autonomy—which underscores that different governance philosophies can produce similar spending outcomes with very different implications for local discretion.
Low tax autonomy often limits municipalities’ ability to prioritize, innovate, or respond flexibly to shocks, reinforcing the importance of revenue design in decentralization debates.
Local governments as central public investors
Perhaps the most strategically important finding concerns public investment.
In 2024, EU local governments invested €281.9 billion, accounting for 42.8% of total general government investment and 1.6% of GDP. In many countries, municipalities are the primary public investors, not just co-financers. Countries such as Finland, Italy, France, the Netherlands, Romania, and Sweden record local investment shares above 50%. This means that EU policy priorities—climate transition, digital infrastructure, housing, transport—depend heavily on local fiscal space and administrative capacity.
While local investment intensity has increased slightly at EU level over the past decade, national trends diverge sharply. Some countries show strong and sustained increases, while others register stagnation or decline, often reflecting funding constraints, centralization, or reduced co-financing capacity.
This confirms a central message of the report: local governments are not peripheral actors in public investment in Europe—they are its backbone.
Main conclusions: Europe’s local governments at a crossroads
The evidence leads to several overarching conclusions:
First, local governments are indispensable to Europe’s public sector, both as service providers and investors. Any debate on EU green, social, or cohesion policies that ignores local fiscal capacity is incomplete.
Second, fiscal stress is structural, not cyclical, in many countries. The growing gap between responsibilities and revenues is a warning signal that current intergovernmental frameworks are drifting out of alignment.
Third, municipal size alone does not explain fiscal outcomes. Larger municipalities may improve capacity and efficiency, but financial sustainability ultimately depends on task allocation and funding design, not administrative scale alone.
The report does not advocate a single model of decentralization. Instead, it shows that diversity can work—but only if responsibilities, revenues, and capacities remain aligned. As Europe faces demographic change, climate transition, and growing territorial inequalities, the future effectiveness of public policy will depend, more than ever, on the strength and sustainability of local governments.
With this in mind, the report points toward three reform priorities. First, there is a need–in many countries–to have a clearer and more stable assignment of responsibilities, avoiding unfunded mandates. Second, there is a need for better alignment of mandates and revenues, with predictable and responsive transfer systems. And third, sustainability of local governments will require stronger local fiscal autonomy, particularly through enhanced own-source revenues, to support resilience and investment.
Access the full report:
KDZ – Centre for Public Administration Research (2026). European Local Government Report 2025: Structures, Finances and Functions of Local Governments in the European Union. Authors: Thomas Prorok and Sofia Calzola.
