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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.

Suggested Citation

  • Roy Bahl & Musharraf Cyan, 2010. "Tax Assignment: Does the Practice Match the Theory?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1004, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper1004
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    Cited by:

    1. Brian Dollery & Michael Kortt & Bligh Grant, 2013. "Options for rationalizing local government structure: a policy agenda," Chapters,in: The Challenge of Local Government Size, chapter 10, pages 242-262 Edward Elgar Publishing.
    2. Matteo Bobba & Jérémie Gignoux, 2011. "Policy-induced Social Interactions and Schooling Decisions," PSE - G-MOND WORKING PAPERS halshs-00962478, HAL.
    3. Miral, Romulo Jr. E.M., 2017. "Federalism: Prospects for the Philippines," Discussion Papers DP 2017-29, Philippine Institute for Development Studies.
    4. Daniel Artana & Sebastián Auguste & Marcela Cristini & Cynthia Moskovits & Ivana Templado, 2012. "Sub-National Revenue Mobilization in Latin American and Caribbean Countries: The Case of Argentina," IDB Publications (Working Papers) 3887, Inter-American Development Bank.

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    Keywords

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

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