On the relation between central and sub-national government fiscal balances

Unbalanced panel least squares regression results (with fixed cross-section and period effects) suggest that changes in the fiscal balances of central and sub-national tiers of government in OECD countries tend to be highly positively correlated and that this partly reflects the existence of administrative controls and fiscal rules that govern central- and sub-national government fiscal relations. In contrast, cooperative institutional frameworks and reliance on market forces do not appear to have secured complementary fiscal adjustment at the sub-national tier of government.