ABSTRACT
This chapter focuses on the decentralisation of the public sector revenue function. Fiscal decentralisation takes place for various reasons. When public finances are managed at the local level, policymakers can pay more attention to local needs. On the public spending side, sub-national governments may attend to specific policy issues that matter for local populations and direct financial resources to local public policies and programmes. Fiscal federalism is intertwined with arrangements of political decentralisation, where central governments partially share political functions and policy-making powers with sub-national governments. In many countries sub-national governments can raise revenue through taxation. In the US, for example, most states levy sales tax on the sale or lease of most goods and services. A form of revenue for sub-national governments originates from the privatisation of local public services. Inter-governmental transfers consist of grants that central governments provide to fund the operations of sub-national governments.
