Local Taxes and Local Expenditures in Developing Countries: Strengthening the Wicksellian Connection

Abstract

Countries around the world are decentralizing in various ways. Many studies have evaluated such reforms and their effects on corruption, stability and growth as well as on the provision of such services as health and education. Decentralization is often intended in part to make government administration more efficient, flexible and responsive. Since what governments do and how well they do it is inseparably entangled with the question of how they are financed, this article outlines why and how a key element in a sound decentralization program should be to strengthen the linkage between local expenditures and local revenues -- the Wicksellian Connection.

Keywords: decentralization; local finance; benefit principle; user charges

JEL Classification: H11, H71, P43