The Economics of Local Government Expenditure

Abstract

Central governments may wish to control local government expenditures in aggregate both because they may impinge upon the former’s management of the economy and they are usually part-financed by central government. Hence, there is a macroeconomic rationale for control of local government expenditure. However, central control would clearly limit local autonomy, as recognized in the above quotation.

Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population…. Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.

(European Charter of Local Self-Government: Articles 3 and 9)