Vertical fiscal imbalances and fiscal performance in advanced economies

The paper examines empirically, using a measure of “vertical fiscal imbalances” (VFI), the relationship between overall fiscal performance and the financing structure of subnational governments. It presents stylized facts regarding the size, evolution, and components of measured VFI using data from 28 OECD countries. On average, the general government fiscal balance is found to improve by 1 percent of GDP for each 10 percentage point reduction in VFI.