Theories, principles, opportunities and challenges of local government financing: A Comprehesive review of literature

Abstract

This article provides a comprehensive examination of the theories, principles, benefits, and challenges that underpin the multifaceted landscape of local government financing. The discussion delves into the theoretical foundations of fiscal federalism, the Benefit and Ability-to-Pay principles, the Tiebout Model, Tax Increment Financing (TIF), and Public-Private Partnerships (PPPs), which guide the allocation and management of financial resources at the local level. It underscores the importance of intergovernmental cooperation, equity in taxation, and local autonomy in shaping financial policies and practices. The article further highlights the advantages of local government financing, including efficient resource allocation, local control, diversified revenue sources, and economic growth. However, it also acknowledges the persistent challenges, such as equity concerns, fiscal sustainability, coordination, and public accountability. In conclusion, this article underscores the significance of striking a balance between theory and practice to ensure effective and responsible local government financing for the betterment of communities.