Chapter 14: Tax assignments at the regional and local levels
Over the past two decades there has been an unprecedented move toward decentralized governance all over the world. These changes have taken special significance in many developing and transitional countries where centralized systems were perceived to have failed to deliver improved general welfare. The promise of political, administrative and fiscal decentralization is that it can strengthen democratic representative institutions, increase the overall efficiency of the public sector and lead to improved social and economic welfare for countries that decide to adopt it. One critical assumption in expecting these benefits is that decentralized governments will generally be more accountable and responsive to citizens’ needs and preferences than centralized governments had been in the past. At the same time, there is general agreement among experts in decentralization that the increased accountability associated with decentralization can only be assured when subnational governments have an adequate level of autonomy and discretion in managing their budget expenditures but also in raising their own revenues. If effective fiscal decentralization requires meaningful revenue autonomy at the regional and local levels of government, the question is, which taxes should be allocated at these levels? This is known in the fiscal decentralization literature as the ‘tax assignment problem’.
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