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Unformatted text preview: Gilbert, Guengant and Hespel 2001). 2.1. French local authorities enjoy extensive financial autonomy
France is a country in which local authorities enjoy considerable fiscal flexibility (it ranks second, after Sweden, and
ahead, in particular, of the other countries of northern Europe). The same is true of borrowing, since local authorities
enjoy extensive latitude, i.e. prior authorization is not required to borrow, except for borrowings denominated in
currencies other than the franc and the euro. The only constraints concern control over legality, control over budgetary
balance and the registration of debt repayment, and compliance with certain prudential rules.
However, overall, these rules do not go beyond the requirement that borrowings be amortized financially. In particular,
they do not compel the economic amortization of public capital (to this end, it would be necessary for the balance of the
operations section to be realized following the inclusion in expenditures of the economic amortization of local public 227 Commission on Fiscal Imbalance amenities and not according to the existing rule that only obliges authorities to pay off debt related to amenities). The
authorities, in particular, the biggest ones, which maintain their treasury at the minimum possible level, readily optimize
the obligation to deposit free funds with the Treasury.
The close link formerly imposed between obtaining loans and subsidies and the characteristics of the amenities funded
has been loosened. Most of the subsidies and allotments that the authorities now receive are comprehensive and are
paid as a lump sum.
Broadly speaking, French local authorities now enjoy significant financial autonomy in comparison with their counterparts
in most EU member nations. However, striking differences separate member countries in which local authorities enjoy
France is the only member of the group where there is significant local autonomy and local spending accounts for a
modest proportion of GDP. While the spending of highly autonomous local authorities in Sweden, Denmark and Finland
accounts for between one-quarter and one-third of GDP, the equivalent figure in France is only 9%. However, in all other
member countries, except the Netherlands, the weight of the local public sector is hardly different from that in France but
the degree of fiscal autonomy is smaller. There is no clearly positive relationship between local financial autonomy and
the spending power of the local sector (Chart 1). 2.2. Fiscal autonomy is strong despite extreme territorial fragmentation
The second distinctive feature of the situation in France concerns the relationship between local fiscal autonomy and
territorial fragmentation. It may be thought that it is easier to grant considerable fiscal autonomy to local authorities all
the more so as local expenditures are moderate and the authorities are small in terms of population. This is true in
France, although it is not the case in the northern European countries, except the Netherlands, where strong local
autonomy is combined with limited territorial fragmentation. Generally speaking, there does not appear to be any clear
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