Subnational taxation in developing countries : a review of the literature

This paper reviews the literature on tax assignment in decentralized countries. Ideally, own-source revenues should be sufficient to enable at least the richest subnational governments to finance from their own resources all locally-provided services that primarily benefit local residents. Subnational taxes should also not unduly distort the allocation of resources. Most importantly, to the extent possible subnational governments should be accountable at the margin for financing the expenditures for which they are responsible. Although reality in most countries inevitably falls far short of these ideals, nonetheless there are several taxes that subnational governments in developing countries could use to help ensure that decentralization yields more of the benefits it appears to promise in theory. At the local level, such taxes include property taxes and, especially for larger cities, perhaps also a limited and well-designed local business tax. At the regional level, in addition to taxes on vehicles, governments in some countries may be able to utilize any or all of the following -- a payroll tax; a simple surcharge on the central personal income tax; and a sales tax, in some cases perhaps taking the form of a well-designed regional value-added tax. The"best"package for any particular country or subnational government is likely to be not only context-specific and path-dependent, but also highly sensitive to the balance struck between different political and economic factors and interests.Subnational Economic Development,Public Sector Economics,Taxation&Subsidies,Debt Markets,Public&Municipal Finance

Urban Governance and Finance in India

Over 330 million people live in Indias cities; 35 cities have a population of over a million and three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. Indias cities are large, economically important, and growing. However, neither urban infrastructure nor the level of urban public services is adequate for current needs, let alone to meet growing demands. Dealing with this problem is a formidable challenge. Not only must adequate finance for the provision of services be found but it is critical to ensure that the money spent results in desired outputs and outcomes. To do so, local governance structures also need to be reformed and strengthened. This paper attempts to point the way towards some possible solutions by analysing urban governance and finance in India in the context of lessons drawn from fiscal federalism theory and experiences of governance institutions and financing systems both in India and around the world. No one system of urban governance is likely to work equally well for all urban local bodies. However, the paper identifies some key reforms required to realise both the constitutional intent to encourage citizen participation in urban governance and the economic and politically desirable goal of ensuring greater accountability of urban governments. For example, the paper draws attention to existing ambiguities in the assignment system and underlines the need to undertake activity mapping to ensure clarity as well as to make independent agencies significantly accountable to elected governments in urban areas. The paper also discusses a variety of ways of augmenting the resources of the municipal bodies in the country including essential reforms in the property tax system and adequate exploitation of user charges and fees for various services delivered as well as ways of strengthening and improving Central and State transfers to urban local governments. With respect to financing urban infrastructure, development charges should be used more effectively. More should also be done to utilise public lands more effectively. In addition, to a considerable extent capital expenditure requirements will have to be financed through borrowing so further development of the municipal bond market is important, as is more and more effective use of public private partnerships in some areas.India, urban public finance, urban governance, intergovernmental fiscal relations, property tax, Metropolitan areas, infrastructure finance

Land and Property Taxation in 25 Countries: A Comparative Review

Steuer, Eigentum, Boden, Grundsteuer, Vergleich, Welt, Tax, Property, Land, Real property tax, Comparison, World

Urban governance and finance in India.

Over 330 million people live in India's cities; 35 cities have a population of over a million and three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. India's cities are large, economically important, and growing. However, neither urban infrastructure nor the level of urban public services is adequate for current needs, let alone to meet growing demands. Dealing with this problem is a formidable challenge. Not only must adequate finance for the provision of services be found but it is critical to ensure that the money spent results in desired outputs and outcomes. To do so, local governance structures also need to be reformed and strengthened. This paper attempts to point the way towards some possible solutions by analysing urban governance and finance in India in the context of lessons drawn from fiscal federalism theory and experiences of governance institutions and financing systems both in India and around the world. No one system of urban governance is likely to work equally well for all urban local bodies. However, the paper identifies some key reforms required to realise both the constitutional intent to encourage citizen participation in urban governance and the economic and politically desirable goal of ensuring greater accountability of urban governments. For example, the paper draws attention to existing ambiguities in the assignment system and underlines the need to undertake activity mapping to ensure clarity as well as to make independent agencies significantly accountable to elected governments in urban areas. The paper also discusses a variety of ways of augmenting the resources of the municipal bodies in the country including essential reforms in the property tax system and adequate exploitation of user charges and fees for various services delivered as well as ways of strengthening and improving Central and State transfers to urban local governments. With respect to financing urban infrastructure, development charges should be used more effectively. More should also be done to utilise public lands more effectively. In addition, to a considerable extent capital expenditure requirements will have to be financed through borrowing so further development of the municipal bond market is important, as is more and more effective use of public private partnerships in some areas.India, Urban public finance, Urban governance, Intergovernmental fiscal relations, Property tax, Metropolitan areas, Infrastructure finance

Tobacco and Alcohol Excise Taxes for Improving Public Health and Revenue Outcomes: Marrying Sin and Virtue?

Excise taxes on alcohol and tobacco have long been a dependable and significant revenue source in many countries. More recently, considerable attention has been paid to the way in which such taxes may also be used to attain public health objectives by reducing the consumption of products with adverse health and social impacts. Some have gone further and argued that explicitly earmarking excise taxes on alcohol and tobacco to finance public health expenditures – marrying sin and virtue as it were – will both make increasing such taxes more politically acceptable and provide the funding needed to increase such expenditures, especially for the poor. The basic idea -- tax ‘bads’ and do ‘good’ with the proceeds -- is simple and appealing. But designing and implementing good ‘sin’ taxes is a surprisingly complex task. Earmarking revenues from such taxes for health expenditures may also sound good and be a useful selling point for new taxes. However, such earmarking raises difficult issues with respect to both budgetary rigidity and political accountability. This note explores these and other issues that lurk beneath the surface of the attractive concept of using increased sin excises on alcohol and tobacco to finance ‘virtuous’ social spending on public health

The GST/HST: Creating an Integrated Sales Tax in a Federal Country

Canada is not a country with a reputation for bold experimentation. However, Canadian experience demonstrates conclusively that an invoice-credit, destination-based value-added tax (VAT) is workable at the subnational level, with both federal and provincial governments retaining full control over the rates of their sales taxes as well as retaining a surprising degree of policy freedom with respect to the base of the tax. As this paper shows against the background of a concise history of sales taxation in Canada, it has taken decades of federal-provincial negotiations to produce the present substantially integrated national and provincial sales tax system. Moreover, the process not yet complete and the results are far from perfect. Nonetheless, Canada has shown that not only can VATs be introduced at the subnational level but that they can work surprisingly well – at least in a country with an over-riding national VAT

Global Taxes and International Taxation: Mirage and Reality

global taxes; international taxation; taxes on finance; carbon taxes; international governanceMany global taxes have been proposed over the years. This study reviews the more important global tax proposals and concludes that, while many such ideas seem inappropriate or inadequately thought through, others are worth taking seriously. In reality, however, no global governance structure to impose such taxes exists or is likely to emerge in the near future. Global taxation – a dream for some and a nightmare for others – thus is, and is likely to remain for years to come, little more than a mirage. But even mirages may be useful if they motivate people to keep seeking better solutions to real problems. The world now faces one such real problem with respect to reforming the existing international tax regime. This paper therefore also considers whether the current ‘soft governance’ approach to resolving the issues arising from the recent financial crisis is likely to produce politically acceptable, technically feasible and economically efficient and effective results. Experience suggests that the current attempts to reshape the international tax regime may in the end fall short. Even so, however, we should continue considering how to move a few more steps further down the road of slowly and painfully adjusting the existing political structure of sovereign nation states to deal more adequately with the increasingly interdependent world of the 21st century. Whether one is searching for the mirage of global taxation or for answers to the real problems arising from the existing international tax regime, lasting solutions require either an improbably radical change in how the world is run or still more of the sort of episodic evolutionary process of inter-state negotiation and compromise evidenced in the history of international taxation if we are to reach an acceptable and perhaps adequate solution.DfID, NORAD

Are There Trends in Local Finance? A Comparative Look at Data and Normative Models of Local Government Finance

There is little evidence of regional, let alone worldwide, trends in local finances, although trends within particular countries certainly exist. Given the path-dependent and context-specific nature of country experiences, one must be very careful both in categorizing the local finance systems found in different countries and in making cross-country empirical studies of local finances. In analyzing and comparing country experiences, it is important to be clear about the different (implicit or explicit) normative models to be found in the literature and exemplified in practice in different countries