Structural Reform, Revenue Adequacy and Optimal Tax Assignment in Local Government

Abstract

A striking feature of local government reform in many Commonwealth countries has been a heavy reliance on structural reform, often in the form of forced local council amalgamation. This paper argues that the long-run success of structural change in local government hinges on several key factors, not least that voluntary rather than compulsory council mergers have a far greater chance of success. A second key ingredient resides in a high degree of local autonomy in both the composition and operation of decentralized governmental functions. A third vital factor lies in ensuring that revenue and tax assignment is sufficient to provide local government with financial autonomy. Finally, adequate powers of taxation need to be accorded to local government and this requires careful consideration of the types of taxes most suited to local government.