Lessons from Spain, Germany and Canada
Studies in Fiscal Federalism and State–local Finance series
Edited by Núria Bosch and José M. Durán
Chapter 2: Revenue Assignments in the Practice of Fiscal Decentralization
2. Revenue assignments in the practice of ﬁscal decentralization1 Jorge Martínez-Vázquez 1 INTRODUCTION 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 were 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 sub-national governments have an adequate level of autonomy and discretion in raising their own revenues. Thus, 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’.2 In a chapter like this, which is strictly focused on revenue assignments, it is important to make clear that revenue assignment is just one element in the design of the entire system of government decentralization and that if revenue...
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