Commonwealth Local Government Forum

East Africa \ Local government finance

Resourcing local government remains a central challenge to effective decentralisation. This section has content relating to different models of fiscal decentralisation, options for identifying new sources of local revenue, such as local property tax; and strategies for improving collection and deployment of own-source revenue. It also offers information about improving the borrowing potential of local government, innovative financing models such as municipal bonds, shared services, and public private partnerships.

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The Challenge of Local Government Financing in Developing Countries

Cities are assets, solutions and drivers of economic and social development. Cities possess huge untapped economic potential that can and should be leveraged to create wealth and economic opportunities for all. This requires good urban planning that supports urban compactness, integration, and connectivity. However, even the best urban plans risk ending up unused if they are not accompanied by financial and regulatory strategies for implementation. Strategic public investments must go hand in hand with strategic funding mechanisms and supporting governance systems. The report also identifies successful governance mechanisms for efficient and equitable provision of public services in metropolitan areas of developing countries, and shares experiences and methods to making public service provision more viable in peri-urban areas of large cities and in smaller urban centres of these countries.

Author: UN Habitat Publisher: UN Habitat Publication year: 2017


Is Decentralization Good For Development?: Perspectives from Academics and Policy Makers

This book offers insights and lessons that help us understand when the answer is “Yes”, and when it is “No”. It shows us how decentralisation can be designed to drive development forward, and focuses attention on how institutional incentives can be created for governments to improve public sector performance and strengthen economies in ways that enhance citizen well-being. It also draws attention to the political motives behind decentralisation reforms and how these shape the institutions that result. The book's purpose is to marry policy makers’ detailed knowledge and insights about real reform processes with academics’ conceptual clarity and analytical rigor. This synthesis naturally shifts the analysis towards deeper questions of decentralization, stability and the strength of the State. The book explores these in Part 1, with deep studies of the effects of reform on state capacity, political and fiscal stability, and democratic inclusiveness in Bolivia, Pakistan, India, and Latin America more broadly. These complex questions—crucially important to policy makers but difficult to address with statistics—yield before a multipronged attack of quantitative and qualitative evidence combined with deep practitioner insight. How should reformers design decentralisation? Part 2 examines these issues with evidence from four decades of reform in developing and developed countries. What happens after reform is implemented? Decentralization and Local Service Provision turns to decentralization’s effects on health and education services, anti-poverty programs, etc. with original evidence from twelve countries across Africa, Asia, and Latin America.

Author: Jean-Paul Faguet and Caroline Pöschl Publisher: Oxford University Press Publication year: 2017


The Mobilisation of Sub-National Revenues Is a Decisive Factor in the Realisation of the 2030 Agenda

2015 the global community committed itself to an ambitious programme of reform. Achieving the Sustainable Development Goals and implementing the resolutions of the Paris climate conference require that great efforts are made – including those of a financial nature. Many states will have to ensure that untapped or barely used sources of income are developed. Sub-national units such as provinces, departments, districts, and cities will play an increasing role in the mobilisation of public revenues. They are also in the forefront with regard to realisation of the global reform agenda, as many of the objectives concern classic areas of activity of local government: schools, basic medical care, local road construction, public transport, construction of social housing, the supply of drinking water and disposal of waste water, refuse collection etc. These services are already the responsibility or co-responsibility of subnational units. The mobilisation of revenues at sub-national level is therefore not only a financial necessity, it is also prudent from a development policy perspective: if the users and funders of a good match, there is a greater likelihood that the preferences of citizens will be observed and the use of funds monitored. In addition, local taxes and levies are often paid by a broad circle of citizens and companies. This serves to strengthen the relationship between governments and the governed. One thing should be clear in this: although many countries will exploit the scope for collecting local taxes and levies in the future, this potential is nevertheless limited. Many sub-national units will remain dependent on transfer payments from the central state. Cities, districts and the middle tier cannot solve the funding problem of the states on their own. However, they can help to place the provision of public services on a broader foundation of legitimacy and, in co-operation with the national level – for example via the exchange of information – improve fiscal policy as a whole. Consequently, they also contribute to overcoming problems of fragile statehood.

Author: Christian von Haldenwang and Armin von Schiller Publisher: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Publication year: 2017


Decentralizing for a deeper, more supple democracy

We review recent evidence regarding decentralization and state strength and argue that decentralization can deepen democracy without compromising state strength if adequately designed. We examine how decentralization affects five key aspects of state strength: 1) Authority over territory and people, 2) Conflict prevention, 3) Policy autonomy and the ability to uphold the law, 4) Responsive, accountable service provision, and 5) Social learning. We provide specific reform paths that should lead to strengthening in each. Decentralizing below the level of social cleavages should drain secessionist pressure by peeling away moderate citizens from radical leaders. The regional specificity of elite interests is key. If regional elites have more to lose than gain from national schism, they will not invest in politicians and conflicts that promote secession. Strong accountability mechanisms and national safeguards of minority rights can align local leaders’ incentives with citizens’, so promoting power-sharing and discouraging local capture or oppression. “Fragmentation of authority” is a mistaken inference; what decentralization really does is transform politics from top-down to bottom-up, embracing many localities and their concerns. The state moves from a simpler, brittler command structure to one based on overlapping authority and complex complementarity, where government is more robust to failure in any of its parts. Well-designed reform, focusing on services with low economies of scale, with devolved taxation and bail-outs prohibited, should increase public accountability. Lastly, we advance a novel way that decentralization can strengthen democracy: by allowing citizens to become political actors in their own right, the small scale of local politics should promote social learning-by-doing, so strengthening political legitimacy, state-building, and ‘democratic suppleness’ from the grassroots upwards.

Author: Jean-Paul Faguet, Ashley M. Fox, and Caroline Pöschl Publisher: Journal of Democracy Publication year: 2015


Structural reform, revenue adequacy and optimal tax assignment in local government

A striking feature of local government reform in many Commonwealth countries has been a heavy reliance on structural reform, often in the form of forced local council amalgamation. This paper argues that the long-run success of structural change in local government hinges on several key factors, not least that voluntary rather than compulsory council mergers have a far greater chance of success. A second key ingredient resides in a high degree of local autonomy in both the composition and operation of decentralized governmental functions. A third vital factor lies in ensuring that revenue and tax assignment is sufficient to provide local government with financial autonomy. Finally, adequate powers of taxation need to be accorded to local government and this requires careful consideration of the types of taxes most suited to local government.

Author: Lorenzo Robotti, Brian Dollery Publisher: Commonwealth Journal of Local Governance Publication year: 2009


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