4.3. Fiscal trends for local authorities in CESEE

priorities, with prioritisation of key projects, and more selective grant spending. For this reason, the technical capacity, governance and coordination issues highlighted by the EIB Investment Survey are crucial for deciding the efficient use of these (potentially scarce) resources.

4.3. Fiscal trends for local authorities in CESEE

Local authorities are the leading institutions in public investment projects. On average, sub-national authorities are responsible for some 51% of the gross fixed capital formation of the general

government. In CESEE, this share is generally lower, particularly in Estonia, Hungary and Slovakia (Figure 29). In Europe as a whole, local authorities’ spending represents around one-third of public sector expenditures and, although there are country-specific peculiarities in terms of responsibilities and autonomy, regions and cities are the providers of key public services such as transport, sanitation, health, education and childcare.

Figure 30 –Public investment by level of government, 2016

Source: Eurostat.

Since 2007, fiscal adjustment in EU countries has fallen disproportionately on local authorities, and particularly on public investment.

Over the last decade, changes in investment activities by regional and local authorities explain as much as 75% of the overall fall in total public investment. 63 This trend is particularly relevant for the different trajectories observed within European countries. As shown in Figure 31, which reports expenditure composition, these changed significantly in the local

governments in the region. These shifts are larger than those of central governments. 64 In

areas hit most badly by the financial crisis, local authorities reduced public investment more significantly in response to budgetary constraints (on both the expenditure side and the revenue side), with a potential significant impact on social cohesion and on the financial recovery capacity of weaker regions.

63 For details on the impact of Stability and Growth Pact (SGP)

on investment of local/regional authorities, see Council of European Municipalities and Regions, “Reviving local public investments: flexibility is needed in the existing rules of the stability and growth pact”, 2015. 64 See EIB, “EIB Investment Report 2017/2018: from recovery to sustainable growth”, 2017; Ahrend, R., Curto-Grau, M., and Vammalle, C., "Passing the buck? Central and sub-national governments in times of fiscal stress", OECD Regional Development Working Papers, No 2013/05, OECD, 2013.