Introduction

During recent years the financing of local government has become a key policy issue in most developed countries. In general the problem is seen as one of ever-rising local expenditures creating intolerable fiscal pressures on the local tax base. This ultimately leads to fiscal crisis, often through a local taxpayer revolt. The widening resource gap is exacerbated by the simultaneous cuts in the real levels of intergovernmental transfers, namely grants paid by the upper tier of government to the lower tier of local government.