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Leveling Up : Impacts of Performance-Based Grants on Municipal Revenue Collection in Mozambique

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  • Erman,Alvina Elisabeth
  • Solis Uehara,Carla Cristina
  • Beaudet,Chloé

Abstract

Due to recent decentralization reforms, municipalities now have important responsibilitiesin the sustainable urban development of Mozambique. This paper assesses the efficiency of World Bank funded municipalperformance grants and technical assistance provided to municipalities, to enable municipalities to increase revenuecollection. The municipal performance grants transferred resources to municipalities directed by performance-basedindicators. The technical assistance program provided classroom and on-the-job training for municipal staff. Theeffect of a municipal performance grant on revenue collection is found to be positive and the effect isprimarily lagged. Receiving a municipal performance grant in years t−1 and t−2 is associated with an increase in revenuecollection in year t. Contemporary effects are negative but not significant. However, the positive impact of a laggedmunicipal performance grant on revenue collection is only significant after 2015, which coincides with implementationof technical assistance. And when municipal performance grants are combined with technical assistance, thecontemporary effect of the transfer is also positive and significant. Overall, the impact of the municipalperformance grants is larger for towns than cities. For every 10 meticais per capita received in municipalperformance grants when combined with technical assistance, revenue collection increases by 10–11 meticais per capita incities and 24 and 60 meticais per capita in towns. The findings of this study suggest that performance-based grantsincentivize local governments with low capacity to collect more revenue. However, the transfers should be accompaniedby a technical assistance program that can support capacity building in financial and fiscal management, as well asurban development and investment planning.

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  • Erman,Alvina Elisabeth & Solis Uehara,Carla Cristina & Beaudet,Chloé, 2021. "Leveling Up : Impacts of Performance-Based Grants on Municipal Revenue Collection in Mozambique," Policy Research Working Paper Series 9789, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9789
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