Property taxation and democratic decentralization in developing countries

Dele Olowu

Research output: Working paperAcademic

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For a variety of reasons, many developing countries especially since the 1990s
have embarked on programmes of democratic decentralization that are aimed at
creating local self-governing systems that are democratic, relatively autonomous and
effective in delivering services. Finding independent sources of financing for these
emerging, locally based organs of governance has been one of the central challenges
that confront these efforts in most countries. The literature suggests that sources of
independent local government revenue are few in poor countries. As a result, most
countries design decentralization programmes that depend heavily on
intergovernmental transfers from national to local governments. Given widespread
poverty that exists in most developing countries, this is a crucial strategy. However,
the problem is that many central governments are engulfed in a systemic financial
crisis and are desperately exploring strategies for reducing their expenditure
commitments. One outcome is that revenue transfers are often irregular or fall much
below the levels of expenditure decentralization, leading to serious fiscal gaps at the
local level. Even where transfers are adequate and reliable, a fiscal regime which
compels local actors to depend so heavily on central financial arrangements for
practically all of their expenditure requirements undermines the development of
lateral (local state-citizen) rather than vertical (central-local state) relations within the
state, with serious implications for public participation and effective accountability.
In the meantime, cities of developing countries continue to grow
phenomenally in a way that makes conventional strategies for financing urban
infrastructures unsustainable. Many analysts view this rapid urbanization as fatally
aggravating the problem of urban/local governance. This paper suggests a different
and more positive view. It reviews the literature which concedes that property taxation
remains largely untapped and might indeed be progressive in developing countries.
This literature highlights mainly the technical constraints to progress-assessment,
valuation and collection. In contrast, this paper contends that the tax suffers from a
combination of political and technical factors where the latter are dependent not
independent variables. The paper undertakes an analysis of the key stakeholders in
implementing successful property taxation policies based on research conducted in
four countries- India, Nigeria, Republic of South Africa and Zimbabwe in the early
1990s. The paper suggests that willingness, opportunity and capacity remain critical
factors and demonstrates how opposition to the tax can be overcome by strategic
partnerships between central and local governments, public and private and domestic
and external actors.
Original languageEnglish
Place of PublicationDen Haag
PublisherInternational Institute of Social Studies (ISS)
Number of pages35
Publication statusPublished - Oct 2004
Externally publishedYes

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SeriesISS working papers. General series


  • ISS Working Paper-General Series


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