OVERVIEW OF FISCAL DECENTRALISATION
The Grand Duchy of Luxembourg is a unitary state and, given its small territorial size, fiscal decentralisation is limited. The only effective tier of sub-inational government is 102 municipalities (communes).
Legal acts governing fiscal decentralisation
Article 107 of the constitution grants the municipalities the power to administer their assets, under government supervision. Communes have statutory responsibilities defined by the Constitution and/or delegated by laws related to spatial planning, enforcement of public order and safety, organisation of nursery and primary school education, and supply of public utilities and networks (local road networks, drinking water distribution, sewerage, waste collection and disposal, cemeteries, etc.). In addition, communes have other responsibilities such as providing infrastructure for sports, culture, tourism, health care and public transport. Communes are allowed to form legal associations (syndicats de communes) to fulfill certain services jointly.
Qualifying fiscal decentralisation
Municipalities are allowed to impose and set the level of communal taxes after approval by the central government (specifically, the Ministry of the Interior). In 2018, total consolidated expenditure of sub-national governments amounted to around 12% of general government expenditure, or 4.7% of GDP. In 2018, local government realised a consolidated surplus of 248 million euros (0.4% of GDP).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
LEVEL OF FISCAL DECENTRALISATION
Revenue autonomy at the local level is below the EU average (51%% versus 53% in 2018), this entails a rate of dependency on central government transfers that is slightly higher than the EU average (54% versus 48% in 2018). In 2018, local own revenues represented 6% of total government revenues, a value considerably lower than the EU average (13%).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
Transfer dependency seems to have increased since 2008 following the financial crisis. Between 2000 and 2008 the average transfer dependency was 45% whilst between 2009 and 2018 it was 54%. Sub-national authorities' ability to set tax rates is mostly restricted (89.3%) and only over a small fraction (6.3%) of local authorities have full discretion.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
Fiscal rules and borrowing capacity
Budgetary surveillance is in the hands of the Ministry of Interior. Municipalities are not prohibited from running an operating deficit according to the Communal Law. Debt-issuing is only allowed if no other financing is possible and only if regular reimbursements can be ensured within the operational budget (Art. 118 of Communal Law, 13 December 1988).
Deficit and debt at sub-national levels
The consolidated gross debt of the Luxembourg local government sector has gradually been falling since 2010 when it was at 2.4% of GDP. In 2018 it reached 1.5%.
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA
Expenditures of municipalities represents a lower share of total general government expenditures than the EU average. The main items in this regard are environmental protection (76% in 2017), recreation, culture and religion (60% in 2017) and housing (46% in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
Municipalities' spending is more significant, and higher than the EU average, in the fields of general services (19% of total local spending), economic affairs (16%), recreation, culture and religion (16%) and environment (15%).
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
