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Fiscal Federalism 2016

Making Decentralisation Work

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Fiscal Federalism 2016 surveys recent trends and policies in intergovernmental fiscal relations and sub-central government. Accessible and easy-to read chapters provide insight: into growing spending and tax devolution; the fiscal constitutions of federal countries; how immovable property taxation is regaining its former significance; on the true spending power of sub central governments; on the mix between own tax resources and intergovernmental grants; and on the role of fiscal rules and good budget frameworks for sustainable debt management at the state and local level.

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Taxes or grants: What revenue source for sub-central governments?

Sub-central governments (SCGs) have two main revenue sources: own taxes and grants from other tiers of government. Both revenue sources help finance sub-central public expenditure, but differ in the way they are generated and distributed. As a result, the sub-central revenue mix is likely to shape decisions at all levels of government about how, when and on what to spend money. This chapter presents the policy issues and trade-offs for both central and sub-central governments as they seek to strike a balance between own taxes and grants. The first section shows how the make-up of sub-central revenues has evolved from country to country. The second section explores the advantages of own sub-central taxation, while the third section makes the case for intergovernmental transfers. As for the fourth section, it puts forward policy options for improving the balance between taxes and grants.

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