This project tries to look at decentralization of VAT revenue and administration to sub national governments in Ethiopia in light of the international practices. It used individual in-depth interview to collect primary data from Ethiopian revenue and custom Authority (ERCA), Addis Ababa regional city administration tax office and ministry of finance and economic development (MOFED). The methods used for analysis were both qualitative and quantitative. The project discusses the problems in connection with decentralization of VAT administration and assignment of VAT revenue. The project suggests that decentralization of VAT administration needs capable and autonomous regional government and strong central government that could monitor and evaluate decentralization; and the assignment of VAT revenue also needs the central governments' follow up to minimize the distortions and should be applied in consistent with the constitution
Decentralizing revenue-raising responsibilities is one of the most unsettled issues in fiscal federalism. The dispute concerns the extent and method of decentralizing expenditure responsibilities, with relatively little debate about its merits. It is common in federations to decentralize the provision of major public services in areas of health, welfare, and education, as well as the provision of public goods and services of purely state or local concern, such as roads, water, and sanitation. Some of these programs are of national importance. Federations differ considerably, however, in the extent to which they accompany expenditure decentralization with revenue-raising responsibilities. For example, in Canada and the United States, provincial or state levels of government enjoy considerable revenue-raising autonomy with access to virtually the same broad-based taxes as the federal government. On the contrary, in Australia and Germany, while the states and Länder are responsible for delivering health and education services, they rely heavily on transfers from the federal government for their financing and have no direct access to income or general sales taxes. In both cases, they share sales tax revenues with the federal government through revenue-sharing arrangements, but this leaves them with no independent revenue-raising discretion of their own. The reason for this disparate situation is that the case for decentralizing revenue-raising responsibilities is much less clear-cut than for expenditures. Perhaps the strongest political argument is that of accountability, a notion that is not easy to formulate or verify.
Decentralization and autonomy can potentially increase public sector efficiency, effectiveness, and accountability, as well as fulfill a conflict‐mitigating role. There is no guarantee, however, that decentralization, once implemented, would automatically produce the expected benefits. Using the case of the Autonomous Region in Muslim Mindanao (ARMM) in the Philippines, this article explores the importance of organizational capacity and the cultural, political, and social conditions in the region to explain the performance of the autonomous government. The article concludes that for autonomy to work, the administrative and institutional capacity of the regional government should be revitalized and the current politico‐administrative structure redesigned to accommodate local customs and practices and facilitate a consultative and collegial local governance arrangement.
The origin of modern state is taxation.Tax state is a mixture of taxes in modern area which has the character of public price and non-profit-making,and democracy and rule-of-law of modern state.Tax state should be reflected in the aspects of public goal and national goal.If there is no tax state,the real state-ruled-of-law which takes economic liberty as its centre will be impossible.Tax state must build a structure which will complete the rule-of-law.Taking tax state's principle of legalism,egalitarian and human rights which stem from democracy of finance as a derivation,we should perfect the system of fiscal constitutionality,fiscal decentralization of authority and correlative procedures and set a basic boundary for the operation of tax state.
Dalam hubungannya dengan pelaksanaan otonomi daerah dan otonomi
khusus melalui desentralisasinya di Propinsi Papua Barat, idealnya pemerintah
daerah mampu secara mandiri dalam menyediakan berbagai fasilitas pelayanan
publik bagi seluruh masyarakat yang ada di daerah tersebut dengan dana yang
lebih besar bersumber dari Pendapatan Asli Daerah (PAD). Hal itu bisa dapat
diwujudkan dari besar-kecilnya realisasi anggaran belanja pelayanan publik,
namun yang terjadi justru PAD tidak mampu membiayai semua kebutuhan belanja
daerah sehingga ada indikasi bahwa masih tingginya ketergantungan fiskal daerah
terhadap transfer pemerintah pusat berupa dana perimbangan dan dana otonomi
khusus.
Penelitian ini bertujuan untuk mengetahui ada atau tidaknya flypaper
effect dan pengaruhnya terhadap total belanja modal pelayanan publik maupun
belanja modal di bidang pendidikan, kesehatan maupun infrastruktur daerah pada
Kabupaten/Kota di Propinsi Papua Barat. Alat analisis yang digunakan adalah
model regresi data panel dengan metode estimasi pooled least square. Adapun
variabel bebas yang di gunakan dalam penelitian ini adalah Dana Alokasi Umum
(DAU), Dana Alokasi Khusus (DAK) dan Dana Otonomi Khusus (DOK) yang
diduga mempengaruhi belanja modal pelayanan publik.
Secara umum, hasil yang diperoleh dari penelitian ini adalah bahwa
variabel bebas baik secara individual maupun secara serempak berpengaruh
positif terhadap total belanja modal pelayanan publik dan belanja modal
pelayanan publik di bidang pendidikan, kesehatan, dan infrastruktur. Hasil lain
juga menunjukkan bahwa terjadinya anomali flypaper effect yakni bukan hanya
terjadi pada dana alokasi umum sebagaimana penelitian-penelitian sebelumnya
namun yang terjadi justru pada dana otonomi khusus dan dana alokasi khusus
Kabupaten/Kota di Propinsi Papua Barat.
In relation to decentralization and special autonomy through
desentralization in West Papua Province, local governments should ideally be able
to be independent in providing public service facilities for all communities in the
area with larger funds sourced from the Regional Revenue (PAD). This can be
realized from the amount of budget spending of public service, but what happened
instead of PAD is not able to finance all local shopping needs, so there was
indication that the still high fiscal dependence on the central government transfers
of funds and fund balance of special autonomy.
This study aims to determine whether or not flypaper effect and its impact
on the total capital expenditure in public services and capital expenditures in
education, health and local infrastructure in District/City in the province of West
Papua. Analysis tool used is the panel data regression model with the method of
least square Pooled estimate. The independent variables are used in this research is
the General Allocation Fund (DAU), the Special Allocation Fund (DAK) and the
Special Autonomy Fund (DOK) that allegedly affect the capital expenditure of
public service.
n general, the results obtained from these studies is that the independent
variables both individually and simultaneously a positive impact on total capital
spending of public service and public service capital expenditure in education,
health, and infrastructure. Other results also show that the flypaper effect of the
anomaly not only occurs in the general allocation fund, as previous studies but that
happened just at the special autonomy fund and special allocation funds District/
City in the province of West Papua.
Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data.
The paper examines the progress being made in local finance reforms and indicates pathways to advance those reforms. A summary of the effects of decentralization is given as a contextual background for the discussion of local finance reforms. The inefficient tax assignment has constrained the mobilization of local tax revenues even as local government units have become very dependent on the intergovernmental fiscal transfer, called the internal revenue allotment. The paper raises the importance of revisiting the internal revenue allotment formula. It identifies the local finance reforms currently being undertaken and reports the progress being made at the local and national level. The final section comments on the outstanding issues in local finance reform and gives some recommendations.
This dissertation examines Peruvian ministries' implementation of administrative decentralization, 2003-2006, and identifies factors shaping their decentralization policymaking. In administrative decentralization, implementation involves translating broad guidelines into sectoral transfer policies. Sectoral policymakers who execute decentralization mandates are, therefore, responsible for relinquishing authority and resources to subnational governments. Despite this challenging situation, little is known said about factors-- or otherwise--shaping the implementation of administrative decentralization. The initiation of state decentralization programs throughout Latin America has been examined and largely attributed to national political factors, rather than technical considerations. However, transferring power is not an assured outcome of national politicians' decisions to decentralize. This study explores a process that continued to be shaped by ministries after national political actors ceased to be involved; after a rapid start of top-down reforms, administrative decentralization virtually stalled under their control. Peruvian policy sectors are very heterogeneous, suggesting a need for distinct approaches to reform. Nevertheless, ministries' collective failure to implement rapidly has been attributed to generalized resistance to relinquish authority. This view is consistent with a bureaucratic politics-type understanding of public policymaking. However, my comparative analysis of decentralization policies reveals that self-interested resistance is significant but does not coherently explain policymaking or variation between policies. Furthermore, while resistance is ubiquitous, there are different types of resistance to reform, coming from autonomous offices, top policymakers, or the Presidency. In contrast, institutionalist lenses identify rules and processes that significantly condition possibilities for administrative decentralization. Policymakers face distinct challenges and opportunities in each sector; some ministries had deconcentration programs underway when national reforms started. While institutionalist lenses elucidate distinct conditions for reform, focusing on "audacious reformers" highlights the role of individual agency. The exceptional case of Health features a complex organization led by a reform-minded minister to the forefront of reforms. All three approaches to analyzing the implementation of administrative decentralization are complementary in providing coherent accounts of sectoral policymaking. Different combinations of institutional conditions, sectoral characteristics and individual motivations are ultimately responsible for variation among approaches to reform. Administrative decentralization emerges, not as one process, but as a constellation of particular paths of reform.
The last decade has witnessed a world trend of fiscal decentralization in the developing countries as an escape from inadequate growth and inefficient governance. With respect to China, fiscal decentralization has been a fundamental aspect of its transition to a market economy; and the country has made substantial efforts to break down its highly centralized fiscal management system. China’s fiscal system currently has five levels – central, provincial, prefecture, county, and township. Sub-national governments have been assigned primary responsibility for public services provision and financing. China’s highly decentralized system could be a boon to managing service delivery, but the country’s crave for rapid economic growth in the last two decades has kept the reform of the public services on the fringes of political agenda. Under the current arrangements, public services are extensively decentralized with sub-national governments taking a much larger portion of expenditure responsibilities that are out of line with international practice. The over-devolution of spending responsibilities has resulted in insufficient financing and provision for core public services, and particularly a default in the delivery of vital services in many rural and poor localities. Further, in the absence of mechanisms to ensure national minimum service standards, the decentralized public services delivery system is faced with growing inequality across the country due to the widening regional disparity in economic development over the past decade. This paper reviews fiscal decentralization policies in China, identifies prominent issues in the current pubic service delivery system, and examines the deficiencies in the existing intergovernmental fiscal system that have contributed to insufficiency and inequality in public services provision. It advises plausible reform options to further national objectives.
In the beginning of the 1980s, Cameroon witnessed a sustained rate of growth, associated essentially with the boom in the oil sector. Increased budgetary and extra-budgetary resources generated by this sector helped to raise the investment rate in the economy, and to maintain a reasonable level of external indebtedness. But after this period of expansion, the country experienced unfavourable economic development caused by a successive decline in the terms of trade, leading to profound imbalances, notably in public finance and the external account. The government subsequently initiated a series of measures to reform its tax system and to adapt it to national economic realities. An efficient and equitable taxation encourages production and the accumulation of national wealth stimulates saving and investments and hence job creation. Such a tax system could, therefore, ensure sustainable growth and development in Cameroon. The study aims to contribute to a better understanding of the evolution of the tax system in Cameroon. In particular, the paper reviews the chronology of the main tax reforms and the evidence on the distributional aspect of taxation. Investigating the issues involved with tax administration and decentralization in the country and local government finances, it also attempts to explore the problems and successes associated with the implementation of tax reforms.
The growth of Africa’s towns and cities has outpaced local authority capacity in terms of management, infrastructure, and financing. Many African towns and cities are now facing a governance crisis. Accordingly, the capability and capacity of urban local government to provide basic services to a growing population have entered the core of the development debate. In particular, fiscal decentralization – the devolution of revenue mobilization and spending powers to lower levels of government – has become a main theme of urban governance in recent years.\nThis paper explores the opportunities and constraints facing local revenue mobilization in urban settings in Africa. The study examines various revenue instruments available, including property taxes, business licences, and user fees, and their effect on economic efficiency and income distribution. Moreover, political and administrative constraints facing various revenue instruments and factors impacting on citizens’ compliance behaviour are discussed. The analysis is exemplified by cases from across Africa and other regions. Local governments need to be given access to adequate resources to do the job with which they are entrusted. However, a general conclusion emerging from this study is that local revenues mobilized in most urban authorities in Africa are necessary but not sufficient to develop and supply adequate services for the fast-growing urban population.
This chapter deals with the evolution of tax administration in Spain from the initial stages of the democratic process, way back in the second half of the seventies, up to the present time. Given the relevance of the classical interrelation between the tax reform processes and tax administration reforms, we review the main events and milestones in the last three decades. We analyze the influence that institutional, economic, and political factors have had on both the architecture of the tax administration and its organizational behavior. Nevertheless, based on what we have just said, the performance of the Spanish tax administration cannot be satisfactorily assessed without explicit reference to the deep decentralization experienced by the Spanish tax system from the early eighties, and especially since 1994. That is why a considerable part of the chapter is devoted to analyze the role played by the successive reforms of the Autonomous Communities' financing system, and the decisions of the regional governments themselves, in shaping Spain 's tax administration.
This paper attempts to trace and find evidence for the linkages between the quality of governance, and development at the local level since the adoption of the fiscal decentralization policy in the Philippines in 1991. The concern since then over the links has been prompted by the observed persistent imbalances in local development - across and within regions - which many believe is due to the less than prudent exercise of the devolved powers and responsibilities - hence, low quality of local governance. To be sure, the decentralization has led to not a few innovations in local service delivery and financing, and in increased people's participation in local civic activities. However, the spread of innovation has been slow and there has been less than genuine participation in the mandated local special bodies. The uneven quality of local governance thus may have contributed to imbalanced regional growth. Evidence also indicate that the initial level of economic conditions determine the acceptable quality of local governance, which explains why certain poor areas remain in the vicious circle of penury and misgovernance. To help improve the quality of local governance, some policy inputs are suggested.
Decentralization in Indonesia was introduced institutionally in 2001, with a democratization drive promoted by international donors and by the intention of the new government to clear away the centralistic image of Soeharto. Decentralization has had some effects on regional economies and on local government administration. Compared to the period before decentralization, the share of GRDP and local government finance has increased in Java, though investment and bank borrowing have expanded to the outer islands. In qualitative aspects, decentralization has transferred not only administrative authority but also many new vested interests from the center to regions. Local governments have become more extensive economic actors in regional economies. Regional economic actors now compete actively for such vested interests and have missed the opportunity to create market-friendly regional economies. The government sector should not be a mere rent-seeking economic actor, but should play a role as a facilitator promoting private sector activities in regional economies.
O trabalho discute, do ponto de vista economico, as vantagens e desvantagens que diferentes graus de centralizacao/descentralizacao fiscal e tributaria apresentam para um crescimento economico equilibrado. Para tanto, sao apresentadas as posicoes defendidas pelos centralistas e descentralistas, autores que, baseados nos resultados de suas pesquisas, tendem a se aproximar de um ou de outro polo, no continuum do sistema politico federalista, os primeiros sustentando a concentracao do poder de tributar e de gastar nas maos do governo central, e os ultimos defendendo a devolucao desses poderes ao nivel de governo o mais distante possivel do centro. O trabalho comeca apresentando as relacoes entre o Federalismo e as estruturas tributaria e fiscal; em seguida coloca a polemica entre as duas correntes mencionadas, concluindo com a indicacao dos temas de uma agenda de pesquisa voltada para o estabelecimento de uma estrutura fiscal e tributaria adequada aos paises em desenvolvimento, uma vez que muito da literatura sobre o tema esta voltada para os problemas dos paises desenvolvidos.Abstract This paper provides a discussion, in economic grounds, of the advantages and disadvantages that different degrees of fiscal and tax centralization/decentralization pose towards achieving a balanced economic growth. Accordingly, it introduces arguments and contentions of both centralist and decentralist authors. Based on their research outcomes they reveal a tendency towards a polarized position within the continuum of the political system of federalism. Whereas the former group sustains the concentration of taxation and spending powers at the federal level, the latter advocates the devolution of such powers to the level of government the most afar from the center. The paper starts presenting the relationships between Federalism and fiscal and tax structures; then it analyses the arguments posed by members of the two streams of thought and concludes proposing specific themes to compose a discussion agenda devised towards the institution of fiscal and tax structures specifically designed to fulfill particular characteristics of developing countries, given that most of the literature is based on the experience of developed countries. Key words: Public goods. Public finance. State and local taxation. State and local budget and expenditures. Intergovernmental relations. Federalism
Abstract: The past two decades have witnessed numerous attempts in developing countries at institutionalizing decentralization. Political leaders tended, before then, to believe that centralized planning was the key to economic growth and development. Ghana has not been excluded from this wave towards the transfer of power, competences, resources and functions from the centre to local levels of government. While Ghana has achieved significant political and administrative decentralization as well as decentralized planning, fiscal decentralization has been the unyielding component of the process. This paper examines the desirability, or otherwise, of fiscal decentralization in the context of funding arrangements. It uses the funding regime model as a basis for analysing how regulatory provisions, political and economic factors and practices, determine financial capacity of sub‐national governments. Evidence in the paper leads to the conclusion that sub‐national governments in Ghana do not support fiscal autonomy. They, instead, prefer being served and financed by the central government.
In many countries fiscal decentralization characterizes the relationship among different levels of government. In those countries, local authorities have the prerogative to tax their constituencies. However, fiscal decentralization is seldom balanced in terms of tax and expenditure assignments. In order to equalize tax capacities, to internalize spillovers or to achieve national policy objectives, central governments often provide transfers to lower levels of government. These transfers may affect the incentives to manage or to improve fiscal performance. Specifically, according to Litvack, Ahmad and Bird (1998), such transfers may induce low `tax effort' in the regions. The purpose of this paper is to investigate theoretically and empirically this relationship between intergovernmental transfers and local tax effort. An initial problem to deal with is the definition of `tax effort' in itself. First, one can associate tax effort to high tax rates. Smart (1998) asserted that such association is inadequate. Second, one can measure tax effort using actual tax revenues or the difference between actual the predicted value of tax revenues. This approach has been mainly adopted by the empirical literature on the relationship between intergovernmental transfers and local tax effort [Baretti, Huber and Lichtblau (2000), Von Hagen and Hepp (2000), Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)]. Although tax revenue is an accurate and observable variable, still one can hardly say that it is a good estimate of tax effort. The reason is for a given region in a given time period tax revenue is affected by many potential variables outside the control of local governments (like idiosyncratic shocks to some specific tax bases) which are seldom well controlled for in estimates of tax capacity. In practice local tax effort encompasses a broad set of actions. One of them is clearly the battle against tax evasion. In spite of its importance, this problem has been only recently addressed by the local public finance literature. Bordignon, Manasse and Tabellini (1996), presented a model where a local government exerts costless effort to catch tax evader workers and they showed how intergovernmental transfers affect tax enforcement. The drawback of this model is that, in reality, tax enforcement is not costless and the cost depends upon other variables chosen by local authorities, like the efficiency of the local tax administration. Although Prud'homme (1995) and Tanzi (1996) have informally signaled the possible inefficiencies of the local tax administrations, this feature has not been raised by the theoretical or the empirical literature. The purpose of this paper is precisely to incorporate such dimension in the assessment of the relationship between intergovernmental transfers and local tax effort. The theoretical framework assumes that in each region there is one representative habitant and a local government. The habitant posses a low or a high-valued property. The local government maximizes tax revenues. In a first period, the local government invests resources to improve the efficiency of the tax administration or to lobby the central government in order to obtain discretionary transfers. This decision is affected by the political cost of reforming the tax administration and on the ability of the local government to negotiate with the central government. Thus, in our model, intergovernmental transfers are endogenous and simultaneously determined with the reform of the local tax system. In a second period, the local government sets the property tax schedule. But, as the local government is unable to observe the value of the property, it has to rely on the habitant announcing this value. Finally, in the third period, the local government decides to enforce the tax law by randomly auditing such announcement. If the habitant is discovered having misreported, the local government sets the corresponding property tax and imposes a penalty. We assume that audit is perfect but costly; the cost depending on the efficiency of the local tax administration. We solve the model backwards. As the local government cannot commit to the auditing probability when it designs its tax policy, the equilibrium of the audit-report game is in mixed strategies, with auditing and tax evasion. Then we find the optimal tax schedule. In order to reduce the stake for tax evasion, the local government distorts downwardly the high-valued property tax. Finally, we solve for the decision of the local government regarding how much resources to invest for improving the efficiency of the tax administration. We find that this decision is negatively associated with the domestic political costs and positively with the ability to negotiate with the Federal Government. The predictions of the model are empirically tested using data for Argentina. The theory suggests a two-step approach. In a first stage we run a probit estimation where the probability of a certain province to reform its tax system (or receiving discretionary transfers) in a given year will be correlated with domestic political variables (e.g. divided government) and also with variables describing its bargaining power vis a vis the federal authorities (e.g. political representation at the National Congress, political party of the President vis a vis that of the Governor). In a second stage, we include this exogenous instrument of tax reform in a regression where the evolution of actual provincial tax receipts are regressed against this variable plus other controls like population, density, provincial income distribution and production structure. Notice that this two stage empirical approach allow us to deal with a frequent problem encountered in the empirical literature given by the endogeneity bias affecting some of the variables of interest, like federal transfers (e.g. Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)).
The tax-sharing system reform since 1994 has hardened budgetary constraints on local governments, but has not derailed the fiscal decentralization trend since China started the reform and opening up. This fiscal decentralization has provided a strong impetus to local finance, so that local governments have become quite enthusiastic in pursuing local economic development and improving local economic efficiency. As market competition intensifies, the public-owned enterprises have gradually become a financial burden on local finance. Meanwhile, the non-state sector has made an increasing contribution to the local economy and to local coffers. Therefore, it has become the optimal choice for local governments, in pursuit of their own interests, to reform the ownership structure of public-owned enterprises.
Section I - Intergovernmental fiscal relations: fiscal decentralization - the provincial-local dimension, Roy Bahl, Sally Wallace challenges of fiscal decentralization in developing and transitional economies - an Asian perspective, M. Govinda Rao liberalization and the spatial allocation of population in developing and transition countries, David E. Wildasin on the measurement and impact of fiscal decentralization, Robert D. Ebel, Serdar Yilmaz comments of section I, Deborah Wetzel. Section II - Tax evasion, tax administration and the role of government: the cost of government and the misuse of public assets, Vito Tanzi, Tej Prakash institutions, paradigms and tax evasion in developing and transition countries, James Alm, Jorge Martinez-Vazquez the circular flow of debts and barter in a transition economy - the case of Ukraine, Wayne Thirsk. Section III - Fiscal policy: growth and taxes - some implications for developing economies, Jack M. Mintz is fiscal stability compatible with decentralization? the case of Latin America, William Dillinger, Guillermo Perry, Steven B. Webb how should tobacco be taxed in EU-accession countries, Sijbren Cnossen taxation of electronic commerce in developing countries, Charles E. McLure, Jr comments to section III, Peggy Musgrave, Francois Vaillancourt. Section IV - a summing up: taking the low road, Richard Bird.
The Indonesian authorities are exploring options for the establishment of subnational government endowment funds and the Ministry of Finance (MoF) has drafted regulations in that context. However, the motivations and objective for establishing an endowment fund at the subnational level diverge across various stakeholders. Clarity of the objectives and purpose of the endowment fund will be critical for informing features of its architecture, and the endowment fund should be aligned with the national fiscal policy objectives. Establishing such funds at a time of fiscal deficit entails a “borrowing-to-save” approach which is not optimal from a fiscal policy perspective. Currently, there is a misalignment between the design of inflow and outflow rules, the endowment fund’s objectives, and the fiscal/economic context. In addition, the current draft MoF regulations restrict the investment policy to conform with the law on decentralization enacted in 2022. This report emphasizes that regardless of the structure of the endowment fund, it needs to be fully integrated within the budget. The report also provides recommendations on assessing the full cost of the subnational government endowment fund, its design and implementation, and provides suggestions to improve the draft MoF regulations.
The biggest tax story of the last third of the 20 th century was the value-added tax (VAT). From its tentative beginnings in the reform of the French production tax in the early 1950s, by August 2000 some form of VAT existed in at least 123 countries. Few fiscal innovations have been adopted so widely and so quickly. Towards the close of the century, another striking trend was the increasing decentralization of the public sector in many countries around the world. In this process, increasing responsibility for delivering such important and expensive public services as education and health has been devolved to sub-national governments, often to regional governments such as states or provinces. Such decentralization may make good sense in many respects, but experience suggests that it is essential to devolve responsibility not only for expenditures but also for some significant revenues if adequate fiscal accountability is to be maintained.The traditional literature on tax assignment suggests that the best form of taxation for intermediate-level governments is a sales tax. Some form or another of sales tax does in fact constitute the major source of finance for intermediate governments in many countries. Indeed, in developing countries in which income taxes do not play a major role, it is hard to see what other major revenue sources such governments could utilize. The retail sales tax once favored as a regional tax, and still in place in most U.S. states (and some Canadian provinces) is now an aberrationfrom a worldwide perspective. The only good sales tax is now generally considered to be a VAT.There appear to be at least three reasons why the question of sub-national consumption VATs needs to bereconsidered, particularly in federal countries with important regional governments. First, there are few other major revenue options open to countries in which, for whatever reason, substantial expenditure responsibilities have been shifted to lower levels of government, if those governments are to behave in a fiscally responsible manner. Second, sub-national VATs have now in fact been successfully operating in Canada for a decade and have also existed, if to less general acclaim, in Brazil for over 30 years. Finally, several novel proposals have recently been made to overcome certain problems that some see with applying the system used in Canada to other countries in which tax administration is less well developed.