Fiscal Consolidation in Austria's Federal System

Austria's public finances are currently under substantial consolidation pressure. In a federal system, successful fiscal adjustment requires strategic cooperation between all levels of government. The allocation of responsibilities for functions and expenditures, as well as the distribution of revenue-raising competences, critically determine the scope for fiscal consolidation available to the federal, state, and local levels. An empirical analysis of consolidation episodes in Austria since 1995 suggests that fiscal adjustment has tended to be revenue-based at the federal level, while subnational governments have primarily relied on expenditure-based measures.