Revisiting local tax attribution under central control: A synthesis

This paper asks how local tax revenues should be attributed when tax rates, tax bases or tax-sharing arrangements are shaped by higher-level governments. To address this question, it combines tax attribution criteria from the System of National Accounts (SNA) with a historical and institutional analysis of key country cases that exemplify tax sharing and centrally determined local taxation, notably Germany and Japan. This framework contrasts with approaches that apply standard fiscal federalism models without fully accounting for country-specific legal and institutional arrangements. Applying it suggests that, in some countries, revenues reported as local taxes may instead reflect centrally determined tax-sharing arrangements or centrally determined local taxes as defined under SNA 2008 criteria. Where such revenues are reported as local taxes, reported figures may diverge from international attribution criteria, including in national accounts and submissions to international organisations. These findings suggest that local tax shares should be interpreted in light of institutional context, including the degree of central-local integration of public finance in unitary countries and cooperative federal systems, rather than as a simple measure of local fiscal autonomy in empirical studies of fiscal decentralisation and economic growth. They also indicate that, in many countries, local tax shares are relatively small, reinforcing the need to distinguish between revenue attribution and effective local taxing power.