ABSTRACT
INTRODUCTION Decentralization of government seems to be one of the intellectual darlings of public finance in the 1990s, just as direct consumption-based taxation in its various guises (e.g., the expenditure tax, the tax on consumed income, the flat tax, the X-tax, and the simplified alternative tax) was the darling of the 1980s. More important, many countries are considering decentralization-or have actually embarked on a policy of decentralization. The question of tax assignment-which level of government should tax what in a decentralized system-is an important aspect of the literature of fiscal decentralization. Unfortunately, some of those responsible for decentralization policy, especially in less developed countries (LDCs) and countries in transition from socialism, are not always thinking clearly about issues of tax assignment and are not taking due cognizance of international experience. At best they may make choices that are sub-optimal; at worst, they run the risk of repeating mistakes other countries have made-mistakes transition countries and LDCs can ill afford to make. These risks are aggravated by the fact that the literature is always not clear on some issues.
