A needs and resources assessment of fiscal equalisation in the Irish local government system

Abstract

In 2000 the central government in Ireland introduced a formula-based needs and resources equalisation model in its local government system to ensure that the allocation of general purpose grants to local authorities was done in an equitable manner. However, the equalisation model is lacking in transparency, with few details publicly available as to its exact specification. Within this context, the purpose of this paper is to critically assess fiscal equalisation in Ireland s local government system. More specifically we address the question of whether general purpose equalisation grants bear any relation to expenditure needs and fiscal resources. We achieve this by estimating our own model based upon a number of indicators of potential need and available resources. We outline a number of alternative equalisation models based on different objective criteria, and compare the simulated allocations resulting from the alternative models to the actual general purpose grants, with a view to partly explaining past allocations but also identifying improvements in the future design of fiscal equalisation in Ireland. Our findings show politically sensitive redistribution away from county councils towards city councils, resulting in new winners and losers. The results for Dublin City Council raise the question of whether, given its population size, level of economic activity and budget, it should be treated separately and as a special case with respect to intergovernmental fiscal relations in Ireland.