Table of Contents

Handbook of Multilevel Finance

Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.

Chapter 14: Tax assignments at the regional and local levels

Jorge Martinez-Vazquez

Subjects: economics and finance, public finance, public sector economics


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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