Executive summary

The recent economic and financial crisis has put a heavy strain on the public finances in many countries. It has also put intergovernmental relations and sub-central governments’ (SCGs) finances under intense pressure. Rapidly shrinking revenues and rising spending responsibilities – partly as a consequence of stimulus programmes – prompted SCG deficits to rise to levels rarely seen before, although central government transfers often protected SCGs from falling into the fiscal abyss. When the stimulus packages ended, SCGs had to bear their share in general governments’ consolidation effort, focusing on spending cuts since tax revenues recovered only slowly and intergovernmental transfers were often frozen. Although consolidation is still ongoing, SCG deficits have returned to pre-crisis levels and debt is stabilising.