Case studies of local government revenue mobilisation

Alam Siddiquee, Noore, Dian Nastiti, and Nur Ana Sejati. 2012. Regional Autonomy and Local Resource Mobilization in Eastern Indonesia: Problems and Pitfalls of Fiscal Decentralization. Asian Affairs: An American Review 39 (1): 44-68.

Does fiscal decentralization empower sub-national governments to raise sufficient revenue from local sources thereby reducing their dependence on the national government? This paper addresses this question by focusing on Indonesia's most recent decentralization policy and assessing and analysing the role of local governments in this regard. Based on data collected from two different locations in Eastern Indonesia the paper shows that the dependency of local authorities on central government is excessive and that the share of local revenue in regional budget has remained rather small. It also shows that while the fiscal power granted to local governments is limited, a combination of politico-economic and contextual factors has further undermined the prospect of revenue mobilisation at the local level. 


 

Canavire-Bacarreza, Gustavo, Jorge Martinez-Vazquez, and Cristian Sepulveda. 2012. Sub-national Revenue Mobilization in Peru. International Center for Public Policy Working Paper 12. International Center for Public Policy.

This paper analyses the problem of sub-national revenue mobilization in Peru and proposes several policy reforms to improve collection performance while maintaining a sound revenue structure. We analyze the current revenues of regional and municipal governments and identify the main priorities of reform. Among the most important problems are the acute inequalities and inefficiencies associated with the revenue sharing from extractive industries. These revenues represent a significant share of sub-national budgets and currently they are distributed without consideration of the relative expenditure needs or fiscal capacity of sub-national units. In order to address this problem we propose the incorporation of a measure of fiscal capacity in the formula of the FONCOMUN, the municipal equalization transfer program. Other reforms explored include the reassignment of revenue sources between municipal provincial and district governments and the assignment of new taxes to regional governments. 


 

Fjeldstad, Odd-Helge and Kari Heggstad. 2011. Local government revenue mobilization in Anglophone Africa. CMI Working Paper 6. Bergen: Chr. Michelsen Institute.

This paper examines opportunities and constraints facing local revenue mobilization in Anglophone Africa with an emphasis on urban settings. Specific revenue instruments and their effects on economic efficiency, income distribution and accountability are discussed. In particular, political and administrative constraints facing various revenue instruments and factors affecting citizens’ compliance behaviour are addressed. The analysis is exemplified by cases from across Anglophone Africa. A general conclusion emerging from this study is that local revenues mobilized in most local government authorities in Africa are necessary but not sufficient to develop and supply adequate services for the fast-growing population. On this basis areas for further research on local government revenue mobilisation in Africa are identified. 


 

Fjeldstad, O.-H., Katera, L., Msami, J. & Ngalewa, E. 2010. Local Government Finances and Financial Management in Tanzania: Empirical evidence of trends 2000-2007. REPOA Special Paper No. 10-2010. Dar es Salaam: Research on Poverty Alleviation.

This paper examines the capacity of local government authorities in Tanzania with respect to financial management and revenue enhancement, and analyses trends in financial accountability and efficiency for the period 2000-2006/7. The study covered six councils in Tanzania: Bagamoyo District Council, Illala Municipal Council, Iringa DC, Kilosa DC, Moshi DC, and Mwanza City Council. Data were collected using a combination of quantitative and qualitative methods, including two rounds of a survey of citizens’ perceptions in the case councils in 2003 and 2006. The following themes are covered: (a) the degree of fiscal autonomy; (b) methods of revenue collection; (c) financial management, including budgeting, accounting and auditing; (d) transparency in fiscal and financial affairs; and (e) tax compliance and fiscal corruption. Based on evidence collected, the study concludes that the process of decentralization by devolution under the Local Government Reform Programme has contributed to improving local government capacity for financial management. However, the reforms have reduced the fiscal autonomy of local government authorities. The central government currently contributes the bulk of local government revenues through transfers and still largely determines local budget priorities. 


 

Fjeldstad, Odd-Helge and Joseph Semboja. 2000. Dilemmas of Fiscal Decentralization: A Study of Local Government Taxation in Tanzania. Forum for Development Studies 27 (1): 7-41.

Local taxes represent less than 6 per cent of total national tax revenues in Tanzania. However, the large number of these taxes, together with their unsatisfactory nature, means that their economic, political and social impacts are considerably more significant than their revenue figure indicates. This paper reviews the main characteristics of the existing local tax system. It discusses how the present tax system emerged, and why it has been maintained for such a long period in spite of all its weaknesses. Finally, it considers options for reform. 


 

Fjeldstad, Odd-Helge and Joseph Semboja. 1999. Local Government Taxation and Tax Administration in Tanzania. CMI Report 3. Bergen: Chr. Michelsen Institute. 

Local taxes represent less than 5 per cent of total tax revenues in Tanzania. However, the large number of these taxes, together with their unsatisfactory nature, means that their economic, political and social impacts are considerably more significant than their figure implies. This paper reviews the main characteristics and impacts of the existing local tax system. It discusses how the present tax system came into being, and why it has been maintained for such a long period in spite of all its weaknesses. Furthermore, it considers options for reform. An important component of the ongoing decentralisation reform in Tanzania is to increase the fiscal autonomy of local authorities. This policy is encouraged and partly initiated by the donor community. The above findings suggest that care must be taken in implementing this policy. It is unrealistic to expect that the present administration in many local authorities has adequate capacity and the required integrity to manage increased fiscal autonomy. In fact, there is a real danger that in the absence of substantial restructuring of the current tax system combined with capacity building and improved integrity, increased autonomy will raise mismanagement and corruption. 


 

Juul, K. 2006. Decentralization, local taxation and citizenship in Senegal. Development and Change 37 (4): 821–46.

This article deals with the politics of revenue collection in a framework of decentralization, democratization and multiparty politics as experienced in the small village of Barkedji in the pastoral region of Senegal. In Senegal, revenue collection has recently been transferred from state administrators to locally elected councilors. Contrary to the assumption of the “good governance” doctrine, this transfer of responsibility has not resulted in a strengthening of democratic structures where taxpayers demand (and gain) public services and more political representation in exchange for increasing taxes. In Barkedji, as elsewhere in Senegal, tax-compliance hit rock-bottom after tax collection became the responsibility of local councilors. Meanwhile other types of local institutions, with less clear state relations, are able to mobilize large amounts of revenue outside the normal tax channels for the provision of goods and service. These non-state institutions seem to have taken over as providers of political representation as well as suppliers of public goods and of access or rights to crucial local resources. The article explores the motivation among first-comers and newcomer populations to adopt or reject tax requirements to different types of organizations, and discusses the implications of this parallel tax collection for the exercise of public authority and the crafting of state and citizenry. 


 

Martinez-Vazquez, Jorge. 2011. Municipal Finances in Latin America: Features Issues, and Prospects. International Studies Program Working Paper 11-07. International Studies Program.  

This paper takes an in-depth look at the current state of the local public finances in the Latin America region, identifies and analyzes some of the main challenges for improving efficiency, equity and effectiveness in the delivery of public services and it closes by offering a set of recommendations for policy reform.

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