Intergovernmental finance and local taxation in developing countries: Some basic considerations for reformers

Decentralization is an increasingly fashionable theme in the development literature. This paper attempts to distil from experience in a number of countries some basic considerations that should be taken into account by would‐be decentralizers with respect to intergovernmental fiscal relations and local taxation. After a brief review of the nature of the problem and the economic case for decentralization, four basic principles of reform—transparency, stability, flexibility, and incrementalism—are put forward as useful guidelines to the restructuring of governmental finances and functions that seem needed in many developing countries.