Effects of High Inflation on Subnational Governments' Budgets

In federal states, adequate funding of the regional authorities is essential for the public sector to fulfill its tasks. Structural development trends and policy measures that increase expenditure and curb revenue worsen budget positions in the medium term. The high inflation of recent years has had direct and indirect, sometimes delayed effects on expenditure and revenue at all levels of government. Using a counterfactual scenario comparison, WIFO estimated the effects of the buoyant inflation on state and local government budgets for the period 2022 to 2025. The result shows that the inflation-induced revenue growth will fall short of the induced additional expenditure.