ABSTRACT
Local governments are the focal point of the decentralization policy in rural Bangladesh. Without additional fiscal autonomy and an alteration in the incentives inherent in the system, local governments may simply be extensions to the already long arms of the central government with little real decentralization achieved. Rural normal grants are a collection of compensation grants that seem to exist more because of historical tradition than because of the needs of local governments. Local governments should be encouraged to think of grants as having a "price," or a matching requirement. While real property constitutes the most obvious taxable resource for rural local governments in Bangladesh, both the statutes and actual practice indicate that other economic and noneconomic activities can also provide resources to the local bodies. The most productive forms of nontax revenues derived by local governments in Bangladesh are fees placed on markets and tolls on roads, bridges and ferries.
