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Does Local Taxation Make Local Government Responsive to Citizens?

 

There is considerable evidence that a significant cause of bad governance, especially in poorer countries, is that states are financed not from the 'earned income' that they derive from taxing their citizens, but rather from the 'unearned income' derived either from large mineral resources or, less significantly, large aid inflows. (For references to this argument, see Natural Resource Wealth is Bad for Democracy).

How far is the converse true: that the taxation relationship contributes directly to improving governance by creating a productive dependence of the state on its citizens? Odd-Helge Fjelstad is very sceptical. On the basis of extensive experience in East Africa, and detailed field research in two districts of Tanzania, he presents a contrary picture. Local taxes are levied in a largely arbitrary and non-accountable fashion. Their main implicit purpose is to provide income for the collectors, local government staff and politically-influential people. There is no identifiable reciprocity in the taxation relationship; it tends to embody some of the worst patterns of state-society relations.

Significance?

  1. The fact that poor governance is associated with a weak tax relationship between states and citizens does not imply that a high level of dependence of any government unit on taxation will bring about a healthy pattern of citizen-state relations. A range of factors and conditions enter into the relationship.
  2. The issue of taxpayers' rights is important to good governance, and largely neglected in poor countries.
  3. There tends to be a particular problem with arbitrary local taxation, for example in much of East Africa and in China. Local governments are permitted - by law or by default - to levy a very wide range of charges and fees, with little or no oversight of how they use these powers and the money raised. Citizens have little knowledge of what they are supposed to pay, and can be coerced into paying any of a wide range of arbitrary charges.
  4. It is now widely accepted that lack of administrative capacity at local level is in many cases a serious obstacle to effective decentralization. We need to add to that a concern about coercive use by local governments of their unregulated authority to tax.

Source: Odd-Helge Fjeldstad, 'Local Government Tax Enforcement in Tanzania', Journal of Modern African Studies, Volume 39, Number 2, 2001, pp. 289-306.
Journal of Modern African Studies is published quarterly by Cambridge University Press (www.cup.org).

Keywords: taxation, local government, decentralization.

Commentator: Mick Moore, IDS (November 2001).

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