CHAPTER 6
Taxing at the Local Level Wilson Prichard and Roel Dom
The Tax Compliance Challenge Recent decades have witnessed substantial decentralization across much of the developing world, but the strengthening of subnational revenue collection has lagged. Although governments have devolved expenditure decisions to lower levels, subnational revenue mobilization is often weak. Lower-level governments in high-income countries typically raise about 30 percent of total public revenue. Their counterparts in low-income countries raise less than 8 percent (Smoke 2019). Decentralization is expected to improve the efficiency of government activities by moving the level of decision-making closer to those most affected by government action (Faguet 2014). Although there is no clear optimal model of tax assignment across levels of government, there is a strong case for a significant degree of tax autonomy at the subnational level. The basic argument is that subnational governments are more likely to allocate their spending effectively and efficiently if they are also responsible for their own revenue (Bird 2011; Sanogo 2019). Local revenue mobilization gives subnational governments the autonomy to respond to citizens’ needs, while being a critical driver of engagement and ownership by taxpayers, thereby improving both accountability and responsiveness. This chapter looks at local taxation, focusing, in particular, on efforts to strengthen property taxation and reform so-called nuisance taxes. But these are not the only sources of subnational revenue. Subnational governments can Taxing at the Local Level
141
