OECD Multi-Level Governance Studies Decentralisation and Regionalisation in Portugal What Reform Scenarios?

This report has been prepared by the OECD upon request by the Portuguese Independent Commission for Decentralisation. Decentralisation and regionalisation reforms have recently emerged on the Portugal’s policy agenda, with two main objectives: assigning more tasks to municipalities and strengthening regional level governance. The report presents a diagnosis of Portugal multi-level governance in international perspectives and highlights the strengths and challenges of the system. It then presents three potential policy paths of regional reform for Portugal. As the options are not mutually exclusive, they could work as complements to each other. The report analyses the conditions under which the reforms may deliver more economic efficiency and regional equity. Foreword Acknowledgements Introduction References Executive summary and main policy options for Portugal Overview Main challenges faced by Portuguese multilevel governance Limited ability to address regional level issues Modest spending and revenue decentralisation limit the benefits received from decentralisation The differences in fiscal capacity between municipalities Tax competition between municipalities may improve efficiency but can also have negative side-effects Volatile municipal tax bases may create spending risks Unclear role of intermunicipal co-operation Overlapping assignments between deconcentrated central government units may be a source of inefficiency The slow economic growth in Lisbon and Porto areas Ways forward in the process of decentralisation in Portugal Prerequisites for a successful territorial and institutional restructuring Three scenarios for enhanced decentralisation in Portugal 1 Why do countries decentralise? What is decentralisation and why do countries decentralise? Main types and forms of decentralisation Fiscal federalism as a starting point for decentralisation The benefits and challenges of decentralisation: A summary of the main effects Economic outcomes Administrative and political outcomes Decentralisation goes hand in hand with an upscale of subnational governance Experiences from intermunicipal co-operation The rationale, benefits and challenges of co-operation International examples and experiences of intermunicipal co-operation Metropolitan governance in the OECD and beyond The rationale for metropolitan governance Examples of metropolitan governance models Regionalisation: An increasing trend worldwide Asymmetric decentralisation References Notes 2 Regionalisation in the context of decentralisation reforms Strengthening regions in a multilevel governance framework Regionalisation through deconcentration Regionalisation through intermunicipal co-operation Regional decentralisation Political regionalisation (institutional regionalism) Regionalisation reforms in the EU countries: An overview Regionalisation and regional institutions Regionalisation and identities Opportunities and risks of regionalisation Regional reforms in Finland, France and Poland One- or two-tier subnational government? The Finnish experience French experiences on regionalisation Regionalisation and decentralisation in Poland Summary of the country examples References 3 The case of Portugal: Diagnosing multilevel governance strengths and challenges Stage of decentralisation in Portugal Subnational government structure Political decentralisation Administrative decentralisation Subnational government responsibilities Autonomous regions Local governments Intermunicipal co-operation and metropolitan governance Municipal enterprises Deconcentrated central government regional bodies Administrative regions: A description of yet-to-be-established regional governments Subnational government financing Decentralisation in Portugal in international comparison Main challenges faced by Portuguese multilevel governance The current Portuguese multilevel governance model does not directly address regional level problems The rapid demographic change and sluggish recovery from the economic and financial crisis form together a tricky policy environment in Portugal Modest spending and revenue decentralisation miss the potential benefits of decentralisation The differences in fiscal capacity between municipalities put pressure on the transfer system and fiscal equalisation Tax competition between municipalities may have both beneficial and damaging effects Volatile municipal tax bases may create spending risks Room for more impact evaluation of public policies concerning subnational governments Unclear role of intermunicipal co-operation Municipal population size is high in European comparison Overlapping assignments between deconcentrated central government units may cause unnecessary duplication and be a source for inefficiency Portuguese model of multilevel governance in comparison with systems in other EU countries: The path-dependency revisited Countries with one subnational government tier Countries with two levels of subnational government Countries with three levels of subnational government Portuguese multilevel governance model The Portuguese model in comparison with Finland, France and Poland Regional development policy in Portugal Regional performance and disparities in Portugal Demographic change poses long-term challenges, particularly in non-metro areas and in the north of Portugal Lisbon and Norte play an important role in Portugal’s economy but regional inequalities are relatively low compared to other OECD countries Regional policy as a test case for broader multilevel governance reforms: Key achievements and outstanding challenge Introduction Overview of Portugal 2020 A strategic focus on competitiveness and internationalisation, as well as sustainability and resource efficiency Increased prominence of regional programmes and territorial approaches Growing focus on less developed regions, particularly the Norte and Centro Governance and institutional framework for regional policy National Regional Subregional and local Regional policy as a test case for broader multilevel governance reforms: Key achievements and outstanding challenges Key achievements Key outstanding challenges References Notes 4 Ways forward in the process of decentralisation in Portugal Making reform happen: Prerequisites for a successful territorial and institutional restructuring Three scenarios for enhanced decentralisation in Portugal Decentralisation and strengthened deconcentration without empowerment of regional level Aligning the regional networks of deconcentrated central government departments with CCDRs Strengthening the capacity and fiscal autonomy of municipalities for enhanced service delivery Clarifying the role of intermunicipal co-operation Intensifying metropolitan governance in the Lisbon and Porto areas Rethinking the task assignments between levels of multilevel government Decentralisation without full regionalisation by reinforced municipal and intermunicipal levels Decentralisation through complementary regionalisation and intermunicipal co-operation reforms References Note