The New Vision of Local Governance
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T A B L E 1 . 8 Intergovernmental Transfers as a Share of Local Government Revenues in Developing Countries, 2003 Transfers as a percentage of total local revenues
Countries (listed in ascending order of the share of transfers)
10–20 20–30 30–40 40–50 60–70 70–80
South Africa Kazakhstan, Chile India Argentina Indonesia, Brazil, China Poland, Uganda
Source: Chapters 2–11 (this volume). Note: There were no countries with percentages in the 50–60 range.
personal income taxes, 14 percent from corporate taxes, and 9 percent from other taxes. Thus, local governments place a much greater reliance on property and income taxes in OECD countries than in developing countries. Property taxes raise only 3 percent of local revenues in China and 74 percent in Indonesia (centrally administered property tax) (figure 1.4). For all developing countries, revenues from property taxes amount to 0.5 percent of GDP compared with about 2 percent (1 to 3 percent) of GDP in industrial countries. This finding suggests that property taxes may represent significant untapped potential for further exploitation. User charges are a significant source of revenues, but often such charges are poorly designed and administered and do not satisfy equity and efficiency principles or provide special safeguards for the poor. Autonomy in local tax base determination and administration is significant in Argentina, Brazil, and Poland; is limited in other countries; and does not exist in Kazakhstan. Overall, the degree of tax centralization in the sample countries is far greater than would be dictated by economic principles or political accountability considerations. Sample countries in general follow a formula-based approach to generalpurpose transfers. Nevertheless, the transfers are often not well designed compared with principles and better practices laid out in table 1.4. China, Indonesia, Poland, and South Africa attempt to use fiscal capacity and fiscal need measures in their fiscal equalization transfers, whereas most other countries have revenue-sharing programs with multiple factors that work at cross-purposes. The practice of fiscal equalization transfers is welcome; however, none of the sample countries use explicit equalization standards that determine both the total pool and the allocation of these transfers. As a result, the transfers do not achieve jurisdictional fiscal equity goals. Specificpurpose transfers are usually ad hoc and do not create incentives to safeguard
