Taxing choices: issues in the assignment of taxes in federations

Abstract

This article examines the tax assignment question ‐ what level of government should levy taxes and what tax bases should they use? The general principles and specific recommendations of the ‘consensus’ position on tax assignment are reviewed. Some of the problems with the consensus view are discussed, including its top‐down benevolent government perspective, its lack of emphasis on accountability, and its failure to acknowledge the problems that are created by the joint occupancy of tax fields. Data are presented indicating that there is wide variation in the levels of taxation and in the tax bases used by subnational governments in eight federations. It is argued that globalisation may strengthen the relative tax powers of state and local governments, while at the same time increasing the public's willingness to pay for education and infrastructure, public services which are provided by subnational governments in many federations.