Article ID Journal Published Year Pages File Type
7391854 World Development 2018 14 Pages PDF
Abstract
Do intergovernmental transfers reduce revenues collected by local government authorities (LGAs)? There is already a well-established body of literature in public finance, which argues that intergovernmental grants “crowd out” local revenues. Most existing studies, however, explore the fiscal implications of intergovernmental transfers in high-income countries where sound fiscal systems are taken for granted. In this paper, I explore the impact of intergovernmental transfers on local revenues in sub-Saharan Africa, a region where local fiscal capacity is limited and endogenously determined by financial support from international donors and the central government. I argue that in places where the existing capacity of LGAs to administer tax collection is weak and political costs of enforcing taxation are low-which are perennial features of many rural districts in Africa-intergovernmental transfers facilitate local revenue generation instead of undermining it. Analyzing newly available quarterly fiscal data on local revenues in Tanzania, I show that intergovernmental grants improve the mobilization of local revenues, and also that the positive effect of fiscal transfers on local revenue collection seems to be more pronounced in rural districts.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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