The Palestinian Economy. Theoretical and Practical Challenges

252
Zagha
it is not surprising that this conclusion has become conventional wisdom. SNGs almost
everywhere are thus urged to make more use of property taxes and user charges, and are
criticised when they do not do so enthusiastically (Bird 2003, p. 1). 4 We will point out
later why property taxes might fail to generate sufficient revenues for LGUs in the
context of developing countries.
2.2. Measurement of Fiscal Decentralisation
One of the difficult issues is to measure satisfactorily the degree of fiscal decentralisation
across countries. Vo (October 2006) developed the fiscal decentralisation index (FDI)
which accounts for both fiscal autonomy and fiscal importance (or economic dispersion)
of sub-national governments. While the index is an advance on current practice, it is still
not perfect as it assumes there is no dispersion of revenue and expenditure across
regions. 5
In essence, the greater the share of SNG expenditure funded from subnational
own sourced revenue (“OSR”), the more fiscally decentralised a nation is. However,
this is adjusted by the adjustment factor (“AF”) from two major influences: (i) total
proportion of intergovernmental grants received that are “untied” (i.e. unconditional);
and (ii) the extent of SNG fiscal autonomy in borrowing decision. As a consequence,
the relative level of autonomy, which can be called “fiscal autonomy”, for SNGs can
be defined as follows:
FA
N
i1
N
i1
OSR
E
i
i
AF
[2.1]
4 International Tax Program, Rotman School of Management, University of Toronto. Bird’s article is a
substantially revised and updated version of a paper entitled “Subnational Revenues: Potentials and
Problems” originally prepared for the Annual World Bank Conference on Development in Latin America
and the Caribbean, Valdivia, Chile, June 1999, and subsequently published in S.J. Burki and G.E. Perry, eds.,
Decentralization and Accountability of the Public Sector (World Bank: Washington 2000).
5 In response to this weakness, Vo (October 2006) developed fiscal entropy and fiscal inequality measures
using information theory (Theil 1967). He shows us how fiscal inequality can be decomposed regionally and
hierarchically. However, the issue of inequality lies beyond the purposes of this research and therefore we
will not deal with it.