REFERENCES
- 1. Stipanovic, B. The Intergovernmental Finance System of the Republic of Serbia. PALGO Center, Belgrade; June 2003;Conway, F. Macedonia Local Government in Transition. Urban Institute, Washington, 1999; Gallagher, M. A Proposed Fiscal Decentralization Plan for Montenegro, ICMA: Washington, March 2001.
- 2. Serbia does not yet have a consolidated personal income tax system. As a result, it is still possible to share particular “lines” of personal income tax between levels of government. Thus, and for example, local governments are entitled to 100 percent of whatever personal income tax is derived in their jurisdiction from “income earned from the rental of real estate.”
- 3. In fact, however, there was substantial change both in composition of this group of taxes and the rates at which they were shared over the course of the 1990s.
- 4. In 2001, the basis of some of these coefficients was also substantially changed, and shifted from coefficients based on the costs of particular services to coefficients based on more objective criteria of need like the number of inhabitants, number of classrooms in schools, and population density.
- 5. These figures must be treated with some caution for two reasons: First, Serbia is in the process of consolidating off-budget funds at the central government level. It is therefore possible that the Republic budget revenue and expenditure figures are not commensurable from year to year. Second, despite the fact that all figures are drawn from MoF data, the 2003 Budget Memorandum presents local government revenues for all concerned years at about 4.5% of GDP. This may be because the Memorandum does not include local government revenues from fees and charges, or perhaps from all original revenues. This would explain the higher shares of GDP that my calculations yield for 2002 and 2003. But it would not explain the lower share I get for 2001.
- 6. It is probably worth adding that the politics of this are fairly clear: The current government of Serbia owes its very existence in large measure to the opposition to the Milosevic regime that consolidated around municipal governments in the late 1990s.
- OECD. 1999 . Taxing Powers of State and Local Governments , Paris : OECD .
- 8. This section of the law ceased to be legally binding with the passage of the Law on Local Government in February 2002For an account of this switch see Stipanovic, B. Analysis of Local Government Revenue 2000–2003.PALGO CenterBelgradeApril 2003
- 9. These fees are related to the provision and maintenance of public utilities for urban properties. They are typically collected by special purpose municipal companies, and sometimes by specific utilities like the water company. Since the reforms of 2000—2001, municipal governments have fairly wide control over the rates they impose on these fees.
- 10. It is important to note here that all public property in the Republic of Serbia remains owned by the national government. Discussions are currently underway about transferring ownership rights over at least some of these rights to local governments. Local governments are, however, legally entitled to the proceeds of any rental or lease agreements they enter into concerning the property in their disposition.
- 11. The Law on Communal Fees lists 15 types of local communal fees. Most of them are related to the use of public space for restaurants, special events, markets, and other sources. Following the reforms of 2000—2001, centrally imposed rates on most of these fees were lifted. Local governments also have the right to impose different fee levels for different zones within their jurisdiction.
- 12. Unfortunately, many countries include in their categorization of “own” or “original” revenue shared taxes. This is misleading because local governments have no rate control over shared taxes.
- 13. For a good discussion of “appropriate and inappropriate” local taxes in theory and practice see: Norregaard, J. Tax Assignment. In Fiscal Federalism in Theory and Practice, Ter Minassian, T., Ed. IMF: Washington, 1997; 49–72.
- 14. Hungary now has this problem because a very significant amount of local government revenues are derived from locally imposed taxes on business turnover. See Jokay, C.;Kovac, R. Local Tax and Fee Policy:Recent Developments in Hungary. Research Triangle Institute: Research Triangle Park, June, 2000.
- 15. The Budget Memorandum for 2003 lists this as a high priority, but of less immediate importance than the implementation of a Value Added Tax.
- 16. There is a separate Public Revenue Office in each of Serbia’s 145 jurisdictions.
- 17. This is the rate charge for property worth up to 6 million dinar. For properties between 6 million and 15 million dinar, a rate of .08 percent is charged on the value over 6 million dinar; for properties between 15 million and 30 million a rate of 1.5 percent is charged on the value over 15 million; and for properties over the 30 million a rate of 2 percent is charged on the value over 30 million.
- 18. We estimate the property tax base by taking the actual yields of the property transfer tax in all jurisdictions and multiplying them by 20. This gives us an estimate of the base of the property transfer tax in each jurisdiction because we know the rate is 5% throughout the country. We then multiply this base by 28.6 on the assumption that 3.5 percent of all properties in each jurisdiction are being turned over in any given year 1003.5 = 28.6). The resulting number gives an imputed property tax base for every jurisdiction, which we then sum for the country as whole and multiply by 0.4% to arrive at as estimated yield of the tax. We then subtract the real yield from this estimate to determine the scale of under collection.
- 19. Again, it should be stressed that there are reasons to believe that the base of the transfer tax itself are also being underestimated.
- 20. The most probable explanation for this is that in these jurisdictions our estimate that 3.5 percent of all properties are actually sold in a given year is too high.
- 21. VAT is a multistaged sales tax designed to be spatially neutral with regard to the production and consumption of goods. As a result, administering it, or sharing it on an origin bases within a single country, is in contradiction with its very construction, though in some extremely large countries, regional governments have been assigned the tax. Equally importantly, the administration of the tax requires a central agency—almost always the national government—to keep VAT accounts for all businesses. They “pay into” these accounts when they purchase goods, and are refunded “from them” when they sell them. The central payee function makes it technically unworkable for the tax to be shared on an origin basis. Moreover, because imports are subject to VAT, while exports are not, sharing VAT on an origin basis would require an almost impossible settling of accounts between exporting and importing jurisdictions.
- 22. Article 18 of the Law on Local Governments, February 2002.
- 23. This can be seen by comparing the Proposed Law on the Participation of Municipalities and Cities in Income and Sales Tax in 2003 of October 2002 with the final version of the Law from December. The sums for each of the four big cities more than doubled.
- 24. There are extremely wide variations across countries in the percentage of local government revenues that come from own sources. In the United States, 65% of municipal expenditures were financed with local revenues in 1989. In Europe, the local percentage varies from 16% in the Netherlands to 87% in Switzerland. A study of 18 developing countries shows that the percentage ranges from 30% to 90%. Bird, R.M. Setting the Stage: Municipal Finance and Intergovernmental Finance. World Bank Institute: Washington; 1999.
- 25. In the professional literature, making local governments responsible for raising a significant share of their revenues is said to reduce “fiscal illusion,” the illusion that there are enough public revenues to support everything people want but are unwilling to pay taxes for. See Musgrave, R.; Musgrave, P. Public Finance in Theory and Practice McGraw Hill: New York; 1980.
- 26. Poland, for instance, has a general subsidy—whose major components consist of a separately calculated equalization grant and a separately calculated education grant—that provides local governments with funding on the basis of the (weighted) number of students enrolled in their jurisdictions. The vast majority of Polish local governments also contribute additional funds to the education system from their own revenues, so the question of their spending these “education” monies on other functions is largely moot. See Levitas, T.; Herczynski, J. Decentralization, Local Governments and Education Reform and Finance in Post-Communist Poland. In Balancing National and Local Responsibilities, Education Management and Finance in Four Central European Countries, Davey, K., Ed. Local Government Initiative: Budapest; 2002.
- 27. If proceeds from the property tax at a standard rate are to be used in making judgments about the fiscal capacities of local governments, it is important that property values be assessed in a uniform way throughout the country as a whole. See Anstett, A. Comparison of Education Revenue Generation Practices in the United States and Canada. Alberta Municipal Affairs: Alberta; March 2001. This can be done by either regulating/monitoring the assessment practices of local governments or leaving the responsibility in the hands of the national government.
- 28. The backbone of the Swedish intergovernmental system, for example, is a local government income tax. The national government sets the base for the tax, and fully administers and collects it, but local governments are allowed to impose their own rates within limits set by the national government.