Financing regional and local economic development Arl820s/arl821s: advanced regional and local economic development

outline Financing regional and local economic development: revenue sources, challenges and solutions

objectives To examine the dynamics associated with financing regional and local economic development To engage students and assess their understanding through interactive discussions

introduction Important role of local authorities in the delivery of basic public services Local authorities in developing countries are confronted with major challenges: rapid urbanization, global financial and economic crises

Financing regional and local economic development Widening gap between availability of financial resources and municipal spending needs: rapid population growth

Financing regional and local economic development in developing countries Reliance on central government revenue transfers Lesser revenues from property taxation and service charges Central government control over revenue sources: income taxes, sales taxes and business taxes Vertical fiscal imbalances at the subnational level

Understanding revenue sources Need for cities to make good use of tax and non-tax revenue sources Sufficiency of locally-generated revenues: improved service delivery, better public accountability

Understanding revenue sources (cont’d) Need to complement locally-generated revenues with inter-governmental transfers Alternative funding sources: municipal bonds, bank loans, municipal development funds, funds form institutional investors, corporate bonds, equity markets and public-private partnerships

Capital markets An alternative way to mobilise resources for regional and local economic development Localities must demonstrate credit-worthiness Influencing factors: sufficiency of own resources, reliability of intergovernmental transfers

Challenges with reforming municipal finance Lack of capacity and political will Low political support Lack of financial autonomy

Challenges facing large municipalities and towns Rapid population growth and the need for expanded service delivery Differences in the level and quality of services provided

Fiscal decentralisation and revenue autonomy Wealthy sub-national governments should finance most of their expenditures with their own revenues Benefit principle: those who use services should pay for them

What form of tax autonomy is desirable? Need to partially limit ability of subnational governments to introduce taxes and levies Power to change the structure of tax bases and rates Level of government charged with administering taxes

Desirable characteristics of subnational taxes Sustainable Equitable Efficient Low administration and compliance costs Politically acceptable

Selecting specific tax instruments Charges and fees Property taxes Vehicle and transportation taxes Local business taxes Excise and sales taxes

Bad choices for subnational taxes Progressive individual income tax Corporate income tax Profit tax

Addressing imbalances in intergovernmental transfers Tax sharing Unconditional equalization grants Conditional grants Capital grants

Innovative approaches to financing local infrastructure Tax increment financing Development impact fees Betterment levies Developer exactions

Financing Local economic development in namibia Crucial role of central government funding Inter-governmental transfers: national, regional and local authorities Early donors: Friedrich Ebert Stiftung and Ford Foundation Current donors: GTZ, HIVOS, Finish

Discussion questions Assess the nature of local government financing in developing countries. Examine the revenue sources for local government financing. What are the challenges associated with reforming municipal finance? Discuss fiscal decentralisation and the form of tax autonomy desirable for local governments. What are some desirable characteristics of subnational taxes? Outline some specific tax instruments for local government financing. How can imbalances in inter-governmental transfers be addressed? Discuss some innovative approaches for financing local infrastructure. Assess the financing of local economic development in Namibia.

Open debate and discussion The financing of local economic development is the primary responsibility of the central government, rather than local governments.

Case study discussion: sustainable financing plan for namibia’s protected area system Why are Namibia’s protected areas important for local economic development? What is the vision of the Namibia protected area system? What is the economic value and cost of managing protected areas? Discuss the financing gap associated with improved management of Namibia’s protected area system. Examine the options for securing sustainable funding for an improved park area system.

References Republic of Namibia: Ministry of Environment and Tourism. (2010). Sustainable financing plan for Namibia’s protected area system. UN-Habitat. (2015). The challenge of local government financing in developing countries.