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Tax Assignment: Does the Practice Match the Theory?

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Abstract

The goal in this paper is to build on the existing literature to better explain the tax assignment choices made by countries in different economic circumstances. In particular, we explain why tax assignment to subnational governments is five times greater in industrial than developing countries, even when adjustment is made for differences in income level. Following on from the theory of tax assignment, we consider four arguments for this disparity. First, electoral regimes are not in place for the accountability gains to be captured. Second, tax decentralization may result in unacceptable fiscal disparities, and third, tax administration costs are higher for subnational governments and there is not enough incentive to take steps to lower them. Finally, we find empirical evidence to reject the hypothesis that giving more discretionary powers to subnational governments in developing countries will lead to a crowding out of central revenues, but find the opposite in the case of industrial countries.

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File URL: http://icepp.gsu.edu/sites/default/files/documents/icepp/wp/ispwp1004.pdf
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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper1004.

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Length: 39 pages
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:ays:ispwps:paper1004

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Web page: http://aysps.gsu.edu/isp/index.html

Related research

Keywords: Tax Assignment; tax administration ; fiscal disparities; theory of tax assignment;

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Cited by:
  1. Brian Dollery & Michael Kortt & Bligh Grant, 2012. "Options for Rationalizing Local Government Structure: A Policy Agenda," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1207, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Gustavo Canavire-Bacarreza & Jorge Martinez-Vazquez & Cristian Sepulveda, 2012. "Sub-national Revenue Mobilization in Peru," Research Department Publications 4768, Inter-American Development Bank, Research Department.

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