If subnational revenue generation often falls short of expectations, how can it be improved to become a more sustainable feature of municipal government?
This question is not easy to answer. To begin, it is important to realize that there are many differ-ent ways in which countries decentralize political administration to allow for local decision-making. This means it is not always appropriate to recommend the same policy across the board. Some countries allow very little discretion for local governments, while others allow a great deal. The level of discretion afforded depends on the constitutional provisions of what municipal governments can and cannot do.
Figure C illustrates the different levels of decentralization around the world. Those in yellow are federal states: countries where most decision-making power is held at the level of regions, provinces, or sub-national states. Some of the most well-known examples of federal states include Nigeria, the United States of America, and Brazil. Federal constitutions usually provide the greatest degree of regional autonomy, allowing local governments wide discretion over the types of taxes they collect.
Those countries displayed in red are unitary states with a centralized political administration, but whose constitutions provide for devolution. Devolution is a constitutional provision that allows for regional decision-making over a set list of government functions. The functions for which there is local political autonomy are established by the political center, and usually cannot be changed without difficulty (for example, requiring constitutional amendment). In terms of local government finance, some discretion is usually given under devolution for local political actors to set budgets and decide the taxation levels to be implemented. While, like under federalism, this has the potential complication of varied tax rates and levels of spending among different provinces or counties, large benefits can be realized by involving citizens in decision-making through electing local representatives, and through engaging in public participation when planning how to carry out local government functions.
In blue, the map shows non-federal and non-devolved unitary states. This kind of heavily centralized political system prevails in Africa and the Middle East.