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Working Paper

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One way to design a local tax system is to determine the desired size and nature of local expenditures and then put in place a tax (and transfer) system providing incentives that lead local decision-makers to choose to finance that expenditure package. In practice, however, there are seldom clear links between local taxes and local expenditures and accountability at the local level is often both confused and confusing. This paper discusses how the Wicksellian connection between local services and revenues might be strengthened by changing the ‘package’ of local services, by altering the ‘package’ of local revenues, and by altering the way in which the two packages are tied together, although it considers in depth only the second of these points. The potential importance of this issue is illustrated by a brief review of an on-going discussion about how to finance the regional public transit system in Toronto, Canada. We conclude that, although advances in technology may make an economically more rational local finance system achievable, it is unclear that people (or politicians) are willing to face the economic realities of local finance.


International Center for Public Policy Working Paper Series #1323, Andrew Young School of Policy Studies, Georgia State University.

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