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Fiscal Decentralization, Options for Donor Harmonisation

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Since the beginning of the 1990s, most developing countries have embarked in a process of subsequent decentralization, combining political, administrative and fiscal aspects. In this context, the Secretariat of the Development Partners Working Group on Local Governance and Decentralization (DPWG-LGD) has commissioned a desk study in the area of Fiscal Decentralization with a focus on local taxation, in order to produce recommendations on two levels: (i) Simplification and optimization of fiscal systems and (ii) harmonization of development partners’ interventions. The desk study has been conducted by an individual consultant from Germany and used sources of information provided by the working group members as well as other sources from her professional experience. Reference is made to positive as well as negative experience in a range of countries, including states at different stages of fiscal decentralization. With regard to revenue generation at sub-national levels, the focus is on real property tax and market fees and taxes. Selected examples regarding innovative modalities for performance-based grants, sub-national borrowing and public-private partnerships are also analyzed.

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