Too Much of a Good Thing? Own Revenues and the Political Economy of Intergovernmental Finance Reform: The Albanian Case

Decentralization projects in developing and transitional countries are typically accompanied by efforts to increase the own-revenue powers of local governments. Both the literature of fiscal federalism and the practices of donors and domestic reformers often see the strengthening these powers as cri...

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Bibliographic Details
Published in:Policy File 2011
Main Author: Levitas, Anthony
Format: Report
Language:English
Subjects:
Budgets/Expenditures
Economic policy
Government
Urban Institute
Online Access:Request full text
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Summary:Decentralization projects in developing and transitional countries are typically accompanied by efforts to increase the own-revenue powers of local governments. Both the literature of fiscal federalism and the practices of donors and domestic reformers often see the strengthening these powers as critically important to the success of local government reform initiatives. The recent history of Albanian intergovernmental finance reform, however, suggests that there can be too much of a good thing: Placing the enhancement of local government tax powers at the center of decentralization projects can not only crowd out--theoretically and practically--critically important efforts to develop stable, predictable, and adequate transfer systems, but can also be politically self-blocking. In this paper, we use the Albanian case to illustrate why in developing countries with highly skewed tax bases there are good reasons to focus first on stabilizing transfer systems, and only secondarily on expanding local government own-revenue powers.