A Model for a Structured Vertical Financial Equalisation in Austria

The starting point of the study is the very dynamic subnational expenditure development of the last two decades and the fact that the rigid revenue distribution of the Austrian fiscal equalisation system hardly reacts to such changes. The present study, therefore, analyses the vertical distribution of funds between Austrian territorial authorities against the background of a possible fiscal imbalance. In an international comparison, it is shown how in other federal states different expenditure developments are incorporated into the vertical distribution of funds by means of quantitative indicators. The study attempts to quantify "necessary" expenditure growth – a central problem of such approaches – by means of a shift-share approach. The results underscore the high structural pressure on expenditure in the Austrian Länder and municipalities. As an example for the elderly care sector, the study also shows that the high sub-national spending dynamic may well continue in the coming years. Finally, the study outlines how an indicator-based, structural vertical fiscal equalisation in Austria could look like and which implementation options need to be considered.