Abstract
This chapter describes patterns of local taxation and issues in local self-finance through taxing local residents. Municipal governments rely on a variety of local taxes—mainly property, income, and sales taxes. International experience tells us that local governments are more efficient, responsible, accountable, and transparent when they raise the revenue that they spend. The best taxes are those based on benefits received with an immobile tax base that do not create problems with harmonization or harmful competition between governments and are easy to administer. This leads to a strong case for property taxation, but personal income and sales taxes may also be defended at the local level, although they are generally less effective at satisfying the criteria for a good local tax.
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Notes
- 1.
For an illustration of the pattern of local tax systems in 1998, see Kitchen and Slack 2003, p. 2228.
- 2.
See Chap. 9 for more detail.
- 3.
See Chap. 10 for more detail.
- 4.
- 5.
In all provinces but one, the provincial government also levies a property tax.
- 6.
For more detail, see Lotz 2012.
- 7.
The Nordic income tax system is a dual income tax system that levies a proportional tax rate on all net income (capital, wage, and pension income less deductions) along with progressive tax rates on gross labor and pension income.
- 8.
- 9.
An alternative approach would be to argue for taxation on the basis of ability to pay. This is appropriate for governments that have access to income taxes (federal and provincial) and where services funded by these taxes benefit all of society as opposed to specific beneficiaries, either individually or as a group that can be identified.
- 10.
Economic efficiency is more than technical efficiency—the latter is a necessary but not sufficient condition for economic efficiency. Technical efficiency exists when a producing unit (firm, government, commission) operates in a way such that it is not possible to secure any additional output given the available inputs (labor, material, and capital) and level of technology. In other words, technical efficiency is achieved when the output per unit of input is maximized or the cost per unit of output is minimized. This, it should be noted, is not concerned with whether one good or service generates more or fewer net benefits than another good or service. It simply concentrates on the efficient employment of inputs in the production of a specific good or service. Finally, as the level of technology advances, a technically efficient production process leads to increased output with the same inputs.
- 11.
See Chap. 11 for more detail.
- 12.
While some elements of income redistribution are inherent in almost all public services, income redistributional services include welfare payments, children’s aid, social housing, and income transfers to name the most obvious.
- 13.
- 14.
The same cannot be said for the nonresidential property tax because some of it may be exported to other jurisdictions through higher prices of goods and services (see Chap. 9).
- 15.
A municipal corporate income tax is not suggested because corporate capital is highly mobile and a municipal tax could lead to capital mobility, a violation of criteria for a good local tax.
- 16.
- 17.
See Chap. 9.
- 18.
Discussed in Chap. 9.
- 19.
A fuller discussion of the inefficiencies and distortions of local government’s taxation of commercial and industrial property is completed in Chap. 9.
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Kitchen, H., McMillan, M., Shah, A. (2019). Local Taxation. In: Local Public Finance and Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-21986-4_8
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