Intergovernmental Fiscal Relations: Questions of Accountability and Autonomy - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 66

all merchandise, they are clearly regressive. 7 Most subnational governments also
have access to other miscellaneous taxes on speci c goods and services, such as

tobacco, alcoholic beverages and the extraction of natural resources (severance
taxes). Both in OECD and non-OECD countries, taxes on property represent an
important source of tax revenue (more than 30 %). Property taxes are levied on land
and capital (buildings and equipment). Their main advantage is that they generate a
stable and relatively easily predictable income. Unlike any other tax, subnational
governments determine both the tax rate and the tax base of property taxes. The tax
base is the value of property, which is assessed by the subnational government.
Since not all property is transacted annually, its market value has to be estimated,
and is always subject to error. Therefore, property taxes are hard to administer and
subject to arbitrariness. Another drawback of these taxes is that they are frequently
regressive, as landowners transfer the tax burden to tenants, and because they more
severely penalize those with

fixed income (e.g. retired people).
In addition to taxes, subnational governments own revenues include user fees,

which consist of prices charged for the provision of goods and services (e.g. water
and sewer charges), licence taxes and fees required to develop a certain activity.
User fees increase citizens

'

'

perception of the costs associated with the good/service
provision and fairness in the distribution of costs. 8 When necessary, user fees also
have the advantage of moderating consumption. They can be used to moderate
access to overcrowded facilities or promote an efficient use of a good or service.
However, because low-income persons are frequently the ones bene tting the most

from government intervention, user fees can impose an excessive burden on them.
Furthermore, they may involve large administrative costs to subnational govern-
ments and compliance costs to users (e.g. time costs). In several developing
countries, high administrative costs associated with use measurement and fee col-
lection in water and sanitation services, together with the perception that citizens are
unable to pay for the services, have led governments to waive the fees (Kurian and
Ardakanian 2014 ).
Subnational governments can also rely on debt issuance to finance their activ-

ities. Debt is justi ed primarily for inter-temporal equity reasons, when it is nec-

essary to invest in long-life capital infrastructures that generate bene ts for several

years and involve high costs that cannot be supported by own revenues and
transfers from upper levels of government. In these situations, subnational gov-
ernments frequently also engage in public-private partnerships. 9
Debt issuance is self-limiting because when the credit-worthiness of a subna-
tional government decreases, lenders demand higher interest rates, which reduce the

7 Because the poor spend a higher proportion of their income than wealthy persons do, taxes on
goods and services penalize them more severely. To overcome this inconvenience, governments
frequently exempt basic goods and services, such as milk, bread, drugs, electric and gas utilities,
from taxation.
8 Only those who bene it, from the good/service have to pay for it, and non-residents bene tting
from it are also required to pay.
9 Refer to Alam ( 2010 ) and OECD ( 2012 ).