Fiscal federalism : dimensions of tax reform in developing countries
The authors propose four economic principles for use in deciding taxing responsibilities for various levels of government. These are: 1) efficiency of the internal common market - for efficiency in internal common market, taxes on mobile factors and tradable goods should either be assigned to the national government or coordinated among subnational governments; 2) national equity - progressive redistributive taxes ought to be assigned to the level of government having responsibility for redistribution, usually the national government. Subnational governments could levy supplementary flat rates on the federal tax base; 3) administrative costs - to minimize collection, administration, and compliance costs, a tax should be assigned to the level likely to be best informed about its base. This suggests assigning real property taxation to local governments and corporate income taxation to the national government; and 4) fiscal need - to ensure accountability, revenue means should be matched as closely as possible to revenue needs. Thus tax instruments intended to further specific policy objectives should be assigned to the level of government having the responsibility for such a service. Thus progressive redistributive taxes, stabilization instruments, and resource rent taxes would be suitable for assignment to national government; while tolls on intermunicipal roads are suitably assigned to state governments. Some resource taxes, such as royalties and fees and severance taxes on production and/or output, are designed to cover costs of local service provision and could be assigned to subnational governments. In addition, subnational governments could also impose taxes to discourage local environmental degradation. In countries with a federal level VAT, it may be too cumbersome to have subnational sales taxes. In such circumstances, the fiscal need criterion would suggest allowing subnational governments access to taxes which are traditionally regarded as suitable for national administration, such as personal income taxes. The authors also stress the importance of tax harmonization and coordination in preserving internal common market, reducing collection and compliance costs and helping to achieve national equity objectives and suggest methods of achieving such coordination vertically (between the federal and subnational governments) and horizontally (among subnational governments).
|Date of creation:||30 Nov 1994|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boadway, Robin & Roberts, Sandra & Shah, Anwar, 1994. "The reform of fiscal systems in developing and emerging market economies : a federalism perspective," Policy Research Working Paper Series 1259, The World Bank.
- Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
- Shah, Anwar & Whalley, John, 1991. "Tax Incidence Analysis of Developing Countries: An Alternative View," World Bank Economic Review, World Bank Group, vol. 5(3), pages 535-52, September.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1385. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.