Decentralisation of the responsibility for public affairs is probably more pronounced in Denmark than in any other country. After the local government reform, the expenditure of municipalities, out of the total public expenditure, amounts to almost 50%.
The Danish decentralisation differs from the financial management model of other countries in three areas:
Firstly, the municipalities are entitled to impose taxes, such as income tax and real property tax (land tax). Consequently, taxes are the primary source of financing for the municipalities.
Secondly, the Danish model differs from that of other countries by the state grants being general and not earmarked for specific purposes. The local politicians make the cross prioritisation of expenditure and service level within the different sectors – naturally within the framework of the law.
Thirdly, since 1980 an agreement system has been developed between the state and the municipalities according to which financial agreements are made between the government and LGDK (on behalf of the municipalities) regarding the framework of the municipal economy. The main advantage of the agreement system is that the agreements and fulfilment of the goals of the agreements, covering all the municipalities, offer the individual municipality more latitude.