Financing Cities in Developing Countries
Author: Roger S. Smith

The financing of cities in developing countries is a complex topic, which this paper only begins to explore. The paper is divided into six sections. Sections I and II attempt to provide a basic understanding of (a) the problems faced by city governments and (b) some of the factors that determine the extent to which city authorities will, and should, be expected to solve these problems. Section I introduces the reader to aspects of the urbanization process, explains why the process is accompanied by an increasing need for government revenues and expenditure, and indicates that cities have some potential for meeting their currently unmet revenue requirements. Section II investigates the effects that the division of responsibility among governmental levels may have on the provision of urban services. This section reviews the factors influencing decentralization, examines difficulties in measuring decentralization, and considers the special status and powers granted to authorities in the largest cities in several countries.

Abstract

The financing of cities in developing countries is a complex topic, which this paper only begins to explore. The paper is divided into six sections. Sections I and II attempt to provide a basic understanding of (a) the problems faced by city governments and (b) some of the factors that determine the extent to which city authorities will, and should, be expected to solve these problems. Section I introduces the reader to aspects of the urbanization process, explains why the process is accompanied by an increasing need for government revenues and expenditure, and indicates that cities have some potential for meeting their currently unmet revenue requirements. Section II investigates the effects that the division of responsibility among governmental levels may have on the provision of urban services. This section reviews the factors influencing decentralization, examines difficulties in measuring decentralization, and considers the special status and powers granted to authorities in the largest cities in several countries.

I. Introduction

The financing of cities in developing countries is a complex topic, which this paper only begins to explore. The paper is divided into six sections. Sections I and II attempt to provide a basic understanding of (a) the problems faced by city governments and (b) some of the factors that determine the extent to which city authorities will, and should, be expected to solve these problems. Section I introduces the reader to aspects of the urbanization process, explains why the process is accompanied by an increasing need for government revenues and expenditure, and indicates that cities have some potential for meeting their currently unmet revenue requirements. Section II investigates the effects that the division of responsibility among governmental levels may have on the provision of urban services. This section reviews the factors influencing decentralization, examines difficulties in measuring decentralization, and considers the special status and powers granted to authorities in the largest cities in several countries.

Sections III, IV, and V examine the patterns in city finances that have resulted as cities have struggled to finance much-needed services. Section III analyzes city government expenditure data for 27 cities in developing countries, and discusses the shortcomings of city data. This section also critically compares actual patterns of city expenditure with patterns predicted or recommended by experts on city finance. Section IV examines city revenues in 35 cities of the developing world and discusses the most likely sources for additional self-raised revenue. Section V deals with intergovernmental aspects of city revenues. Section VI summarizes the conclusions and problems unveiled in this study, and indicates specific areas in which further research is needed.

the problem and its causes

The continued poverty of cities is troublesome but not surprising. Cities are generally allocated revenue sources by higher levels of government. Local governments thus normally depend on the generosity of their too often poverty-stricken parents. But higher levels of government may not relinquish for local use those revenue sources which they themselves value, or consider potentially valuable, until forced to do so by crises at lower government levels. Even then, revenue sharing or grants may be relied upon when the higher levels of government are reluctant to relinquish power.

In many cities the need for public services has simply outstripped the ability to pay for them. Although the so-called push from the countryside may have been overemphasized, stagnant agricultural sectors have contributed to the flow of individuals to the cities.1 Rapid population growth made possible by medical advances has also contributed to high urban growth rates. However, the most important factor contributing to urban growth may well be the increased opportunity, productivity, and higher incomes that are drawing people to the cities. This might suggest that the urban centers should be able to pay for the services that they ought to provide. If they cannot, who can? Such a question oversimplifies the problem. One reason is that urban governments, relative to central governments, may very well have a shortage of administrative ability, and therefore may not be able to draw upon the available resources immediately. Another is that capital outlays needed during the process of rapid urbanization may be large, both absolutely and relatively. Municipal governments in developing countries may well have neither the authority nor the ability to raise the required revenues by borrowing in financial markets. In such cases, there is good reason for some reliance on financing by a higher level of government through grants or direct expenditure. Where administrative abilities permit, increased taxing powers or borrowing authority may be an alternative answer to this problem.

Complicating the financial squeeze on urban authorities is the nature of the activities in which they normally engage. For the most part, these activities are not technologically progressive. As the overall productivity of the economy increases, provided that wages in the various sectors of the economy move concurrently, the per unit cost of output will increase in that part of the economy which is not technologically progressive. 2 A study of local public service costs in the United States found that “rising unit costs have been a major (probably the single most important) source of recent increases in local public budgets.” 3 It concluded that “the historical record together with some further reflections indicate to us that local (especially large city) governments can probably expect that costs will continue to rise cumulatively and at a more rapid rate than those in the rest of the economy, even if there is no increase in either the quantity or quality of the services provided.” 4 This line of reasoning bodes ill for those who must purchase fire protection and education, police, hospital, social, and inspection services. The fact that the bulk of urban services is performed in the nonprogressive sector of the economy means that rising prices will put additional pressures on urban budgets.

urbanization and levels of city expenditure

That the accumulation of people in a small area leads to the need for additional public services cannot be questioned. The disposal of human wastes and garbage becomes a problem. Movements of individuals in an urban area must be coordinated by public transportation, or streets will become overcrowded. Streets must be maintained. Disease prevention and treatment services must be on a higher level, since the increased population density facilitates the spreading of infectious diseases. Crime prevention becomes more essential as strangers go unnoticed in urban neighborhoods and social pressures no longer provide an adequate deterrent. Urbanization is also likely to lead to increased expenditure on public utilities. Large capital outlays are required for water, electricity, and telecommunications systems, often run by the city government. Owing to the high unit costs that accompany small-scale production, many services are not possible in rural settings. But as urban populations increase, economies of scale can be realized and these services grow rapidly. 5 These and other factors lead to an increase in public expenditure as urban populations grow.

It is reasonable to expect the need for local government services to be concentrated more heavily in the large urban areas of developing countries than in those of more developed countries. First, relative to the concentration of population in urban centers, ownership of motor vehicles is much more heavily concentrated in the urban areas of the developing countries than in the urban areas of developed countries (Table 1). This leads to costs for traffic control, road and street maintenance, parking facilities, etc. Second, increased mobility and migration from villages to cities lead to the breakdown of extended family relationships—with a concomitant impact on the need for social welfare programs in urban areas. In highly mobile societies, this phenomenon has existed for some time and welfare programs have been developed. Third, piped water may become essential in order to avoid contamination—a significant change from rural and village water systems in developing countries. Local governments are at least partially responsible for dealing with these problems.

Table 1

Selected Cities: Population and Automobiles in Urban Areas Compared with National Totals, Selected Years

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each city. For Nairobi, Bangkok, Bombay, Djakarta, Bogotá, Caracas, and São Paulo, see No. 3; for Seoul, No. 23; Mexico (D.F.), No. 26; Panama City, No. 32; Rio de Janeiro, No. 7; New York, No. 55; and Ontario, No. 9.

Because of these major changes that accompany a shift from a rural to an urban society, local government per capita expenditure in the large cities is frequently four or five times that of local government in general. As shown in Table 2, only in Uruguay, where a large number of urban services are provided by the Central Government, did the per capita expenditure by local governments in general exceed that by the large city. In Bangkok, Belo Horizonte, Lusaka,6 Recife, Seoul, and Stockholm, per capita expenditure by local authorities was less than twice the average local government expenditure in their respective countries. Although the variation is great, the per capita expenditure of most large cities exceeds that of other local authorities, and is frequently much larger.7

Table 2

Selected Countries: Major City Per Capita Expenditure Compared with Total Local Per Capita Expenditure, Selected Years

(In local currencies)

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each country. For Kenya, see Nos. 21 and 22 (for 1969); for Malawi, No. 25; Tanzania, No. 47; Zambia, Nos. 61 and 63; Korea, Nos. 24 and 23; the Philippines, Nos. 40 and 42; Sri Lanka, No. 45; Thailand, Nos. 50 and 51; Brazil, No. 7; Colombia, No. 13; Mexico, No. 26; Panama, No. 36; Uruguay, No. 56; the United States, No. 54; and Sweden, No. 46.

These figures are for income rather than for expenditure.

Sanitary districts and changwats are not included. If they were included, the per capita figures for (b) would be much smaller.

An indication of increased expenditure for urban services can be gleaned from data on local government expenditure and expenditure by the urbanized departments or provinces. 8 Table 3 indicates the growth that has occurred in the relative importance of municipal expenditure of several developing countries in the past decade. These figures at least temper broad generalizations concerning the increased centralization of government in developing countries. Korea provides a clear example of rapid urbanization and an increase in the relative importance of local public expenditure. To a lesser extent the same phenomenon has been occurring in Colombia, the Philippines, Sri Lanka, and Tanzania, where urban growth has proceeded somewhat less rapidly. However, in Kenya and Turkey, increasing urbanization has been accompanied by declines in the relative importance of local authority expenditure as a share of total public expenditure, perhaps because higher levels of government are providing an increasing amount of urban services.

Table 3

Selected Countries: Subnational Government Expenditure as a Percentage of Total Government Expenditure, 1955-70 1

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each country. For Brazil, see No. 7; for Colombia, No. 13; Kenya, No. 22 (for 1972); Korea, No. 23 (for 1961-72); the Philippines, No. 42; Sri Lanka, No. 45 (for 1961-69); Tanzania, No. 47; and Turkey, Nos. 52 and 53.

Figures include expenditure by all subnational authorities. For Colombia, municipal expenditure as a percentage of total government expenditure is given in parentheses.

Philippine data are for revenues, including grants from the Central Government. Some of the data were obtained from official government sources.

As urban growth continues, urban public expenditure becomes a large part of total public expenditure—whether these expenses are met by a municipal, provincial, or national government. Evidence of concentration of capital expenditure in Dar es Salaam (in Tanzania) is striking. Of the development budget expenditure that could be allocated regionally in 1969/70 and 1970/71, 26.3 per cent and 24.8 per cent, respectively, were spent in Dar es Salaam, 9 which accounted for only about 2.6 per cent of the country’s total population in 1970. Even if the 58 per cent in 1969/70 and the 52 per cent in 1970/71 of development expenditure that could not be allocated by region were spent outside Dar es Salaam (an extreme assumption), concentration of development expenditure in Dar es Salaam would have been very high relative to population. 10 This may be partly due to the fact that Dar es Salaam is growing rapidly—during the 1960s its population grew more than two and a half times as rapidly as that of the nation. 11 It would not be surprising if similar concentrations of capital expenditure were found to exist in other countries with rapidly growing urban populations.

urban development and revenue potential

Urbanization increases the costs of government but simultaneously increases government revenues, as the cities are the focus of economic development. This has been true since industrialization led to the development of cities toward the end of the Middle Ages. The relationship between per capita gross domestic product (GDP) and the level of urbanization is striking, as shown in Table 4. In countries with per capita GDP below $100, 10.4 per cent of the population, on average, was urban; where the GDP was more than $500, the percentage was as high as 68.1.

Table 4

Developing Countries: Relationship Between Per Capita Gross Domestic Product (GDP) and Urban Population

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Sources: See the Sources Used in Preparing Tables, in the Appendix, Nos. 5 and 1.

Urban population includes all those living in cities of 100,000 or more in 1970, Table 5. Selected Cities: Population, Industrial Employment, Electricity Consumption, and Telephone Use in Urban Areas Compared with National Totals, Selected Years

Some additional statistics provide further evidence of the concentration of what might be described as modernization in developing nations. Table 1 indicated the overwhelming concentration of motor vehicles in the principal cities of these countries. As well as generating a need for roads, these vehicles also indicate a concentration of wealth in the urban centers. In the Asian cities of Bangkok, Bombay, and Djakarta, and in Nairobi, Kenya, the concentration of motor vehicles is nine or more times what it would be if they were distributed evenly on a geographical basis according to population. In the other cities in Table 1, the concentration is somewhat less marked. Table 5 gives further evidence of the importance of cities as a focus for development. For example, although Saigon accounts for 10 per cent of national population, it accounts for 53 per cent of commercial and industrial employment. Cities are also the first places where modern means of communications and lighting are employed in a country. Table 5 indicates the degree to which the use of telephones and electricity is concentrated in several principal cities. Regional GDP figures normally indicate a concentration of production in urban regions. In the Colombian departments with the four largest cities, 1964 per capita GDP exceeded the national average by 50 per cent and was more than four times that in three of the more rural provinces.12

Table 5

Selected Cities: Population, Industrial Employment, Electricity Consumption, and Telephone Use in Urban Areas Compared with National Totals, Selected Years

(City totals as a percentage of national totals)

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each city. For Dar es Salaam, see No. 47; for Nairobi, No. 22 (for 1969); Bangkok, No. 51; Manila, No. 38; Saigon, No. 60; Seoul, No. 23; Antioquia and Cundinamarca, No. 12; Mexico (D.F.), Nos. 26, 27, and 28; Panama City and Colón, Nos. 33, 35, and 34; Rio de Janeiro and São Paulo, Nos. 7 and 8.

Electricity sold.

Greater Nairobi, including Mount Kenya area.

Metropolitan Manila.

Gross receipts for electric light and power.

Employment in industrial and commercial establishments.

Manufacturing employment.

These figures pertain to the departments or states rather than the cities.

Electricity generators in 1968.

The question still arises as to whether the wealth of cities is likely to allow them to deal effectively with their needs. It may not. Much of the government revenue derived from urban areas flows to higher levels of government. These levels of government are neither compelled to return the funds in the form of grants nor to spend the revenues on urban services. Indeed, political unrest in outlying provinces may dictate that the funds be spent on military or agricultural projects outside the urban centers.13 The political structure of the country may also have a rural bias, with underrepresentation of the urban sector and a continual subsidization of the rural sector by the urban centers. Countries where this has occurred include France, the United States, and perhaps India. 14 A major problem with such arguments is, of course, that it is exceedingly difficult to measure government expenditure that benefits a certain area relative to the revenues derived from that area. Such measurements must be based on tax burden and expenditure benefit assumptions, and the results are likely to be highly dependent upon these assumptions.15

The following section examines some factors affecting the division of responsibility among government levels and the effect that this might have on both the ability of city authorities to meet their needs and their reliance on higher levels of government.

II. Decentralization and Urbanization—An Overview

In developing countries, no level of government is likely to have a surplus of revenues or administrative talent. The question, which thus arises, is how best to meet the needs of the cities within the existing economic, political, and social constraints. In particular, to what extent can this end be most efficiently accomplished by “decentralization,” or the allocation of decision-making responsibility or power to subnational levels of government? An increase in the quantity of local government resources and/or local government authority to utilize those resources freely means greater decentralization.16

factors influencing decentralization

On the one hand, the devolution of increased powers to city authorities may prove beneficial for a number of reasons. (1) City officials, through their more intimate knowledge of the tastes and wishes of local inhabitants, may best be able to meet the needs of their constituents. (2) Provision of services by local authorities can also ensure greater diversity in the quantity and quality of government services. Even in developing countries this may be of some significance in the largest metropolitan centers. 17 (3) In many countries, tax consciousness is at a low level. In order to expand the public sector, it may be necessary to develop closer ties between tax revenues and benefits, and this can perhaps best be done at local levels. 18 (4) Government bureaucracies in many developing countries can stifle, as well as facilitate, the conduct of business. Decisions made at the local level may put an end to a long chain of command and the related paperwork and delays. (5) Administrative resources and initiative are limited in all developing countries, and an increase in local authority may allow local talents to be utilized more fully. 19 (6) Increased local responsibility may facilitate experimentation, resulting in greater efficiency in the provision of government services. All these arguments as well as equally important political and social reasons suggest that greater authority for city governments may improve the public services.

On the other hand, there are strong arguments in favor of increased centralization of government authority, as this may facilitate the achievement of greater economic stabilization, more equitable distribution of income, and greater uniformity in the provision of public services. 20 However, it seems unlikely that decentralization in any developing country will be so extensive as to seriously threaten the stabilizing role of the central government. In many developing countries, increased equality in incomes and wealth is viewed as a goal that is secondary to increasing the rate of economic growth, and, again, it seems improbable that the likely degree of decentralization will seriously reduce the central government’s ability to redistribute income if it wishes to do so. Another argument for centralization is that it can avoid spillovers from government activities and can increase the likelihood that the optimum level of public goods and services will be provided. Some people have also claimed that the centralization of fiscal powers in developing countries facilitates economic planning and, thus, nation building. However, the extent to which centralization facilitates planning is far from clear, and the need for nation building should diminish generally as colonial status recedes further into the past. 21 Finally, a high degree of centralization might also be justified on the grounds that subnational governments have little administrative capacity. This is true, but every effort should be made to use the administrative capacity that the lower levels possess; to some extent, decentralization may increase the amount of administrative resources that are available at the local level.

In addition, a number of forces exist that are likely to lead to increasing centralization, or to prevent any reduction in centralization regardless of the original situation. First, higher-income levels accompanied by increased mobility of resources lead to a demand for greater uniformity in the provision of public services throughout the nation. Second, if the central government uses the more progressive taxes, growing incomes (probably helped along by inflation) will lead to an increase in the share of the economy’s resources that are controlled by the central government. 22 Third, the elites of new states may overreact to any move toward local autonomy, the consequence being increased centralization. According to Geertz:

The vivid memory on the part of the elites of the New States of colonial divide-and-rule policies, as well as a fear of the strong divisive tendencies they quite accurately perceive both within themselves and in the mass of the population, leads them to regard any explicit and frank concern with internal diversity as subversive of the whole nation-building effort and to view, or try to view, their own society in a much too uniform and global, even stereotypic a manner. 23

A fourth factor that may inhibit any decrease in centralization is the likely concentration of administrative resources in the hands of the central government, following independence. The central government’s control over revenue sources makes it likely that it will pay the salaries and benefits that attract these scarce resources. Concentration of administrative resources may inhibit future decentralization even when nation-building objectives are met and greater decentralization becomes desirable. Finally, centralization is further facilitated by international aid. Foreign governments and international agencies deal with the central government, help to improve central government programs, and provide training for central government officials.

There thus exist significant noneconomic as well as economic forces that can lead to an excessive and perhaps increasing degree of centralization in developing countries, while forces in the reverse direction are not as apparent, despite the possible benefits of more decentralization. As a result, it is not unlikely that centralization of fiscal powers in many developing countries is already excessive, although in some it may still be insufficient.

problems in measuring decentralization

There is no simple index to measure the degree of decentralization of power. Power is an extremely “complex phenomenon and its distribution difficult to measure.” 24 This is true for a number of reasons that become increasingly apparent as countries are examined.

First, in a number of countries, decentralized autonomous government enterprises comprise an important sector of the economy. Since these enterprises are sometimes subsidized by the central government and sometimes pay net profits to the central government, there is a rationale for viewing them from a fiscal point of view as a part of the central government. An effort has been made to exclude autonomous government enterprises from the data examined in this paper. Had their gross revenues been included in central government revenues, centralization would have appeared much greater. For example, gross revenues of these autonomous agencies in Mexico (1969), Paraguay (1971), Venezuela (1969), and Peru (1970) were equal in size to 100 per cent, 46 per cent, 35 per cent, and 22 per cent, respectively, of all other central government revenues.

A second problem arises concerning the incompleteness of data on local government revenues and expenditure. The problem is particularly acute for rural local authorities, even in those countries where data on urban areas are readily available. For example, in India, Indonesia, and Pakistan, where rural populations are large, data are not readily available for the rural areas. Any index of decentralization derived from available figures will understate the importance of local authorities. In Viet-Nam, a country at war, a unique problem arises in that taxes are paid to the Vietcong. If estimates of taxes paid to the Vietcong are reasonable, the share of village revenues in the total government revenues rises from 1.9 per cent to 7.5 per cent, a substantial increase. 25

Third, decentralization may also refer to actual services provided, rather than merely to revenues raised and funds expended. Local authorities may be little more than employment services providing jobs for a number of local residents. An examination of Colombian municipalities found that expenditure on overhead 26 accounted for 40 per cent of total expenditure for all but the four largest municipalities, where it was 13 per cent. 27 An in-depth examination of local authorities in other developing countries is likely to show that overhead costs similarly account for a large part of the local budgets; however, where “community action” provides local services, the budget may understate the contribution of the local public sector. Indeed, to the extent that overhead expenditure helps to foster community action, it may be very productive.

The type of grant employed by central governments in the allocation of funds to local authorities is the fourth factor that will affect the extent to which power is decentralized in the government system. Several possibilities exist, including functional and unconditional grants. For functional grants, the freedom of local authorities to utilize funds as they see fit is strictly limited. A greater devolution of power accompanies the use of unconditional grants than any other form of grant. To gain an accurate picture of the degree of centralization in any nation, one cannot overlook the strings attached to grants—particularly where grants form an important part of total government revenue.

Fifth, the extent to which central governments can vary the revenues that they collect for local governments has a bearing on local powers. Sometimes the revenues distributed are subject only to the discretion of the central authorities. Local authorities have little influence over the amount of taxes collected for them in this manner. This is true in Brazil, India, the Philippines, and Thailand, as well as in other countries. Generally these revenues can be spent as the local authorities wish, and in this way they are similar to block grants. However, in some cases, such as the urban land tax (Iuran Rehabilitasi Daerah—IREDA) in Indonesia, the functions upon which the revenues have to be spent are clearly specified. Cases in which local authorities have some freedom to alter the rates of tax collected for them by the higher authorities appear to be concentrated in high-income countries. With rare exceptions, such as the gross receipts tax in Mexico City (which has only an upper limit), it appears that the local authorities in developing countries are not endowed with the statutory power to alter the rates on taxes collected for them by higher authorities.

Finally, one further word of caution is needed. Decentralization, at least to some extent, refers to the degree to which government remains close to the people. In geographically small countries, such as Panama, Sri Lanka, the Republic of China, and the United Kingdom, people are close to the seat of the central government. Representatives to the central government can be in closer contact with their constituents, and constituents can descend upon the seat of the central government much more easily. There appears to be no sound economic or political reason for the existence of a two-tier system of local government similar to those in the federal states. When speaking of the optimal degree of concentration, each country must be analyzed thoroughly, with recommendations based on this analysis and on relevant experience gained in other countries. 28 Because of these problems in measurement, any useful comparison of the degree of centralization in developing countries is left for a later study.

special treatment of capital districts

In many countries of the world, the urban area that serves as the seat of the central government is designated as a “special district” with powers exceeding those of most other urban areas. This seems particularly true in the Western Hemisphere.

The city of Rio de Janeiro, which formerly served as the seat of the Brazilian Government, coincides with the State of Guanabara. Several advantages stem from this. First, those taxes not allocated by the Constitution to be used by a particular level of government may be used by either the federal or state governments but not by municipalities. Second, the value-added tax (VAT), export taxes, and taxes on the transfer of real property are allocated to the states by the Constitution. This is particularly important in times of inflation, since VAT revenues keep up with the price level much better than do municipal revenues in general. Third, about half of the federal government revenues derived from taxes on electric power and fuel oil is apportioned directly to the states, and only about 10 per cent is apportioned to the municipalities. 29

In Venezuela, the Federal District (in which most of Greater Caracas is located) also combines the powers of state and municipal governments. The Constitution guarantees the distribution of 15 per cent of central government revenues to states, federal territories, and the Federal District—30 per cent to be in equal amounts and 70 per cent by population. 30 The situation in the Special District of Bogotá is similar. In Colombia, as in Venezuela, nearly all central government aid flows to the higher tier of local government (in Venezuela this is the state and in Colombia the department); Colombia also distributes 30 per cent in equal amounts and 70 per cent by population. 31

The Federal District of Mexico also benefits significantly from its special status. On equal footing with the states, it received more than 30 per cent of its revenues in 1963 from its surtax on the federal commercial receipts tax plus its share of national taxes on gasoline, beer, tobacco, and automobiles. 32 In Argentina, the Federal District of Buenos Aires also has a special status. Whereas Argentinian states are generally responsible for primary education, justice, police services, fire prevention, registration of persons and real estate, water supply and sewage, minor public works, and some public health services, the Federal Government provides these services for the Federal District. Outside the Federal District, state residents are subject to additional taxes on gross receipts and property in order to cover the cost of these services, but the Federal Government covers the cost for the Federal District. Since city officials in Buenos Aires do not have to worry about the addition of state gross receipts and property taxes to the local rates, they have greater freedom to raise the local rates. 33

In Asia, both Djakarta and Seoul are central government seats holding special status in a two-tier system of local government. Being on equal footing with the provinces enables Djakarta to levy taxes on motor vehicles and to receive a central government transfer in lieu of export taxes. In 1969/70, budget figures indicated that these two sources were expected to provide Djakarta with about 29 per cent of its total revenues. In Seoul, total funds from the acquisition, automobile, husbandry, entertainment, and license taxes are available for solving municipal problems without any split of these taxes between the sub-provincial and provincial levels of government. Chartered cities in the Philippines also benefit from some preference in that they receive one share of the Central Government’s distribution of tax revenues as a province and another share as a municipality.

The following sections suggest that the special status thus conferred on some large cities has enabled them to increase their revenues and expenditure. Most obvious is the special case of Singapore, where neither expenditure responsibilities nor revenue sources need be shared with higher government levels. Djakarta, Caracas, and Mexico City are other capital districts that appear to have benefited from their special status.

III. City Expenditure

problems with measuring expenditure patterns

This section examines city expenditure patterns in developing countries. Before the data are examined, some of their shortcomings are noted to ensure that conclusions drawn from the data are treated with the appropriate degree of caution.

First, expenditure frequently is not carefully and uniformly allocated by function. Many variations of this problem exist: (1) “General administration” in some cities may include expenditure on courts and police that is specifically allocated by function in other cities. (2) Where functional breakdowns do exist, different countries may use different terms to refer to expenditure for the same function, or the identical term to refer to expenditure for different purposes. For example, what part of public works expenditure is for roads, streets, water systems, school buildings, etc.? (3) In cities in at least two countries, separate supplementary payments are made to present and/or past employees as part of their remuneration, and these payments are not allocated by function. In Colombia, previsión social is designated as a separate function, whereas it is primarily part of the cost of providing other public services. 34 In Indonesia, additional payments to government employees are listed under kesedjahteraan pegawai in Djakarta but under different categories in other large cities. Again, this makes it impossible to estimate accurately the expenditure in particular categories. (4) The “other expenditure” category is frequently large in city data. This appears to be a particular problem in Brazilian cities where 45 per cent or more of total expenditure cannot be allocated by function on the basis of available data. In other cities, even though information on current expenditure may be available by function, capital expenditure information is not. As a result, it is difficult to ascertain the full amount of resources devoted to each function. Dick Netzer found the lack of adequate functional breakdowns in municipal finance data to be a major problem in analyzing local public expenditure in Colombia. 35 (5) In several instances, two or more functions were lumped together in the data relied upon for this study. Two of the more significant cases relate to Bangkok and Saigon: in Bangkok, total expenditure by the Education and Public Welfare Bureau were lumped together in the available data and have been placed under education; in Saigon, expenditure data on public health and social welfare were found to be combined and have been placed under public health. All these problems increase the difficulty of undertaking comparative analysis.

Second, it is often unclear which publicly run enterprise should be considered as part of the public sector and which should be considered as part of the private sector. For example, in the Indian cities, enterprises providing electricity and telephones may be controlled by the municipality, by the state, or by private corporations. In Lagos, Nigeria, the responsibility for providing water is divided between the city and the Central Government. In the three Colombian cities, municipal enterprises have the primary responsibility for providing electricity, telephones, and water. The finances of these Colombian municipal enterprises are recorded in such a manner that their revenues equal expenditure, and they make no net contribution to municipal revenues. By excluding the gross municipal expenditure on water, electricity, and telephones, the relative importance of other expenditure categories rises in Colombian cities vis-à-vis cities in other countries. It is not clear which enterprise in each city should be treated as equivalent to private businesses with expenditure excluded from the public sector, and which enterprise should be treated as part of the public sector with expenditure included. Available municipal data frequently do not provide enough information to allow a systematic and consistent treatment of this issue.

Third, subtle differences in the form of central government aid may lead to large apparent differences in the relative importance of a given function in overall municipal expenditure. For example, 28.5 per cent of total local expenditure is for educational purposes in Freetown, Sierra Leone. Most of this expenditure is financed by a grant from the Central Government to the municipal government to cover the cost of primary teachers’ salaries and the cost of capital improvements. In order for a salary to be covered by the Central Government, the teacher must be approved by the Central Government. In Nairobi, expenditure on education appears to be of relatively less importance, as it equals only 21 per cent of total expenditure. Nairobi received no aid for education from the Central Government in 1965. If, however, the Central Government of Sierra Leone had paid the Freetown teachers directly, rather than channeling the payments through the municipal government, expenditure on education in Freetown would have been a smaller percentage of total local expenditure than in Nairobi—probably less than half as large. In Colombo and in Mexico City the fact that the Central Government is responsible for education causes other expenditure to appear relatively more important.

Fourth, in analyzing local budgets it must not be concluded that the absence of a particular function from the local budget means that the function has been assigned to higher levels of government. In Seoul, Korea, as in U.S. municipalities, local school authorities exist separately from other local authorities, and education remains very much a responsibility of the local community. Therefore, in order to see the relative importance of different local expenditure, it is important to try to obtain information on all the local authorities that operate within the area.

expenditure patterns

Table 6 provides a few insights into municipal expenditure patterns, although, for the reasons mentioned, the data must be interpreted cautiously and only the broadest type of generalization should be derived from them. Apparently, four categories normally account for the bulk of total municipal expenditure—general administration, public health, education, and public works.

Table 6

Selected Cities: Distribution of City Expenditure by Function as a Percentage of Total Expenditure, Selected Years

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each city. For Dar es Salaam, see No. 47; Freetown, No. 43; Lagos, No. 31; Nairobi, No. 21; Bangkok, No. 50; Djakarta, Semarang, and Solo, No. 20; Manila, No. 39, p. 624; Saigon, No. 60; Seoul, No. 24; Singapore, No. 44; Ahmedabad, Bombay, Calcutta, Hyderabad, and Madras, No. 17; Colombo, No. 45; Belo Horizonte, Recife, Rio de Janeiro, and São Paulo, No. 7; Bogotá (D.E.), Cali, and Medellín, No. 13; Mexico (D.F.), No. 29; Venezuela (D.F.), No. 59; New York City and San Francisco, No. 54; and Stockholm, No. 46.

Wherever possible, public works and other public expenditure have been allocated by function; for example, school construction is included with education.

Includes housing as well as public health.

Includes drainage and building maintenance as well as roads.

Most of this expenditure is for parks and recreation.

Includes Education and Public Welfare Bureau.

Includes pensions, payments in rice, and some other fringe benefits of public servants.

Social welfare is included with public health.

Includes Han River construction, which accounts for more than 25 per cent of total public works.

“Defense and security” is a state expenditure.

Less than 0.05 per cent.

All the Colombian city percentages are much affected by the fact that expenditure by public enterprises for water, electricity, and telephones is excluded here.

Since previsión social is supplementary payments to present and past employees, it is included in “General administration.”

Valorization expenditure.

Primarily hospital expenditure but includes some other social welfare.

Includes development, public works, and rectifications.

Includes cemeteries, gardens and plazas, and the official press.

Includes other “utility” expenditure.

Includes heating plants and gasworks.

Includes ports.

Real estate administration accounts for much of this expenditure.

Expenditure on general administration is inevitably a large part of the cost of municipal government. Some evidence exists to support the proposition that administrative expenditure as a share of the total may vary inversely with the wealth of the city. This expenditure is subject to significant economies of scale, since, even in the poorest large city, an administrative system must be able to provide a minimum of health, sanitary, education, and maintenance services. Nevertheless, some of the figures are clearly not explained by this argument—for example, the relatively large share spent on general administration in Mexico City. Some of the differences among cities undoubtedly are due to improved classification schemes in some countries. In some cities the administration is more efficient and also overhead expenditure is likely to be more fully allocated to the various city functions.

Given these qualifications, evidence appears to support the proposition. Perhaps most obvious is the difference between the share spent on general administration in the 27 developing cities (20.8 per cent) and in the 3 cities in the developed world (2.3 per cent). Within geographical areas there also appears to be an inverse relationship between municipal per capita expenditure and the share of total expenditure used for general administration. For example, Seoul and Singapore have by far the highest per capita expenditure of the Far Eastern cities and spend a significantly smaller share for general administration. The same is true for Bombay among the Indian cities, Nairobi in Africa, and Sao Paulo in Brazil. 36 Expenditure for general administrative purposes as a percentage of total expenditure appears relatively comparable among the Colombian cities and also among the three high-income cities. Evidence appears to lend some support to the position that the poorer the city, the more closely it resembles only an employment service: that is, the percentage of municipal resources devoted to shuffling papers is large, while the percentage devoted to providing services to the public (including shuffling papers) is relatively small.

Revenues devoted to health services, as a share of total municipal resources, also vary tremendously among the municipalities of the world. Bangkok, Saigon, and the Indonesian cities all have the responsibility to provide clinics, dispensaries, and medical services. 37 In Bangkok and Saigon, where per capita expenditure is much higher than in Djakarta, the percentage of total municipal expenditure allocated for public health purposes is also much larger. South Asian variations in health expenditure as a percentage of total expenditure are relatively small, although the share in Ahmedabad is more than double that in Madras. In the three African cities of Dar es Salaam, Lagos, and Nairobi, public health accounts for between 20 and 30 per cent of total expenditure. In a fourth African city—Freetown, Sierra Leone 38—the Central Government has the responsibility for both public health and hospitals, whereas the other three cities provide clinics for maternity and child care, dispensaries, and other health centers.39

Between 3 and 5 per cent of total city expenditure in Brazilian municipalities is allocated to hospitals, medical centers, and dispensaries. Although the municipalities are entirely free to function in this area, the states and the Central Government are also active in the public health field. 40 In Colombia in 1969 the municipalities accounted for only about 2 per cent of total public health expenditure; the other 98 per cent was accounted for by collection of gambling taxes by departmental welfare agencies (15 per cent), the National Government (74 per cent), and departmental governments and miscellaneous sources (9 per cent). 41 In Colombia, central government grants for health go directly to the institutions providing the local health services and are not funneled through the municipal governments. 42 Expenditure by the Federal District of Venezuela on public health is a sizable 26 per cent of the total expenditure by the District, and nearly all of it is used to support hospitals. In Stockholm, New York City, and San Francisco, the responsibility for public health is shared by the city and higher levels of government. The share of total expenditure allocated to public health is 18.7 per cent in Stockholm, 10.0 per cent in New York City, and 6.3 per cent in San Francisco.

Expenditure for education ranges from one sixth to one fourth of total municipal expenditure in Bangkok, Djakarta, Seoul, and Saigon. Although the two smaller Indonesian cities of Semarang and Solo retain the responsibility for primary schooling, expenditure for education remains relatively unimportant, accounting for 6 per cent or less of their total expenditure. The city of Colombo in Sri Lanka spends nothing on education, since it is the responsibility of the Central Government. In India, expenditure for education by the municipal corporations varies from 0.5 per cent of total city expenditure in Hyderabad to 20.1 per cent in Ahmedabad; these variations may be partially due to the fact that city responsibilities for education are allocated by the states and may differ among them. It is evident that in the poorer municipalities, owing to lack of resources, either the burden of financing education rests with the states or education is not provided. 43 Evidence suggests that the low priority placed on education by the poorer municipalities is not compensated for by higher per capita expenditure by the state. In 1967-68 per capita state expenditure on education was lowest in Andhra Pradesh (Hyderabad) and West Bengal (Calcutta), and highest in Tamil Nadu (Madras) and Maharashtra (Bombay).44

In the African cities, the relative importance of expenditure on education appears fairly comparable, accounting for between 20 and 30 per cent of total city expenditure. The means of financing the expenditure vary considerably, however. Expenditure on primary schools in Nairobi is financed primarily by personal tax revenues and tuition fees. 45 In the towns and cities of Tanzania, a central government subvention accounted for about 85 per cent of current education expenditure. 46 In Lagos, 70 per cent of recurrent expenditure and 100 per cent of capital expenditure were met by grants; 47 in Freetown, the Central Government covered 100 per cent of the salaries of primary teachers and 60 per cent of capital expenditure.48

Municipalities in Colombia spend very little (as for public health) on education, which accounted for somewhat less than 5 per cent of their total expenditure in 1967. For the total educational expenditure by public authorities in 1966, municipalities accounted for only 6 per cent, departments for 37 per cent, decentralized public agencies for 19 per cent, and the Central Government for 38 per cent. 49 Educational responsibilities in Brazil are divided between the states and municipalities—the particular division varying from state to state. Generally the responsibility for primary education is shared by the municipality and the state, with private and state schools providing secondary education. 50 In 1968, municipalities accounted for 11 per cent of government expenditure on education; the state and federal governments accounted for 62 per cent and 28 per cent, respectively. 51 In Brazil, as in India, there appears to be some indication that the poorer the municipality, the smaller the percentage of total expenditure that is allocated to education. Recife, in Pernambuco (the poorest of the four Brazilian states considered), allocates 5.1 per cent of its total revenue to education, while the state allocates 3.0 per cent of its total; Belo Horizonte (in Minas Gerais) allocates 10.2 per cent, and the state allocates 16.4 per cent. In São Paulo, the municipality allocates 10.6 per cent and the state, 16.1 per cent. When resources are scarce, it appears that expenditure on education is severely affected.

It is difficult to generalize about other categories of expenditure; expenditure on public works deserves mention, however, as its importance has been emphasized in earlier sections. For some of the cities, outlays for public works are allocated by function in Table 6—as in Freetown, Lagos, and Nairobi. In other cities, at least some of the expenditure on these items has been included in public works, such as sidewalks and roads in Bangkok, and roads, sewers, sidewalks, parks, etc., in the Colombian cities. However classified, most cities in developing countries have had to allocate a significant part of their budget to capital projects. Such expenditure ranged from one third to one half of total expenditure in Bangkok, Mexico City, and Cali. In other cities, capital outlays may have been equally important, but because of the allocation of expenditure by function they are not so readily apparent.

Finally, Table 6 indicates that expenditure on welfare was significant only in Colombo, the Brazilian cities, and the cities in the developed countries.

per capita expenditure comparisons for 40 cities

Table 7 indicates that among the Far Eastern cities, those in Indonesia are lagging in per capita revenues and expenditure. In Djakarta, per capita revenues in U.S. dollars are only slightly in excess of half those in Bangkok and are almost one third those in Manila. The same is true for per capita expenditure. To the extent that Djakarta can provide the same services at a fraction of the cost, this type of comparison is not very useful. For example, salaries of school teachers and health personnel will depend in part upon per capita income and general living standards in the country; however, some of the services (such as the construction of main thoroughfares and water distribution systems provided by cities) require modern construction materials and equipment that may have comparable costs in terms of U.S. dollars in these cities. Seoul’s per capita expenditure in terms of U.S. dollars is, with the exception of Singapore, more than two and a half times that of any of the other Far Eastern or South Asian cities. Singapore is a city-state, has no legal restrictions imposed by higher levels of government on its revenue sources, and has full responsibility for all public services. This situation coupled with a relatively high per capita income level helps to explain why Singapore’s per capita expenditure in U.S. dollars is nearly four times that of Seoul.

Table 7

Selected Cities: Per Capita Expenditure and Revenues in Terms of Local Currencies and U.S. Dollars, Selected Years

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each city. For Blantyre, see No. 25; for Casablanca, No. 30; Dar es Salaam, No. 47; FortLamy, No. 10; Freetown, No. 43; Lagos, No. 31; Lusaka, No. 62; Nairobi, No. 21; Bangkok, No. 50; Djakarta, Makassar, Semarang, and Solo, No. 20; Manila, No. 40; Saigon, No. 60; Seoul, No. 24; Singapore, No. 44; Ahmedabad, Calcutta, Hyderabad, and Madras, No. 17; Bombay, No. 16; Colombo, No. 45; Belo Horizonte, Recife, Rio de Janeiro, and São Paulo, No. 7; Bogotá (D.E.), Cali, and Medellín, No. 13; Dominican Republic (D.N.), No. 14; Guatemala City, No. 15; Mexico (D.F.), No. 29; Montevideo, No. 57; Panama City, No. 36; Valencia, No. 58; Venezuela (D.F.), No. 59; New York City and San Francisco, No. 54; and Stockholm, No. 46. Per capita income figures most often were taken from No. 4. Indices to adjust for state or departmental per capita incomes in India were calculated from data given in No. 18; in Brazil they were calculated from No. 6; for Colombia the indices were taken from No. 11.

Cities with a share of certain taxes collected by the central government include Bangkong, Colombo, Djakarta, Manila, Mexico (D.F.), and Seoul.

Per capita income for the country.

Per capita income for the state or department in which the city is located.

A large variation also exists in the per capita revenues and expenditure of the African cities. Per capita expenditure in Nairobi is five times that in Blantyre, three and a half times that in Dar es Salaam, three times that in Lagos, and more than double that in Freetown, keeping in mind that the years are not the same for all cities. Although separate expenditure data for Lusaka were not obtained, it appears from the revenue figures that per capita expenditure in Nairobi was about one and a half times as great as that in Lusaka.

Perhaps of greater interest is the disparity in urban expenditure within countries. Variations in responsibilities and costs, although sometimes still important, will be less than in the intercountry comparisons, and therefore the intracountry comparisons should provide a more accurate picture of differences in the services provided. For five Indian municipal corporations examined, per capita expenditure ranged from $2.59 (Hyderabad, 1966-67) to $10.43 (Bombay, 1967-68).52 Per capita expenditure by the other three corporations for 1967-68 had a wide range: $4.32 (Calcutta), $6.49 (Madras), and $8.39 (Ahmedabad). The differences do not appear to be compensated for by per capita expenditure made by the state governments. Indeed, although the per capita state expenditure varies considerably less than the per capita municipal expenditure, that of Maharashtra (Bombay) is highest ($14.32) and that of Andhra Pradesh (Hyderabad) is lowest ($8.88).

The variation is considerably less among the four Indonesian cities examined. In this case, since Djakarta is both a city and a province for budget purposes, the other cities need to be combined with their provinces in order to meaningfully compare per capita levels of expenditure. When this is done for 1969-70, per capita expenditure ranges from $4.58 in Djakarta to $2.75 in Makassar, $2.51 in Semarang, and $2.38 in Solo—that in Djakarta being less than twice that in the other Indonesian cities examined.53

Differences in per capita expenditure are large in both the Brazilian and the Colombian cities. In Brazil, São Paulo’s per capita expenditure ($38.09) is more than triple that of Belo Horizonte ($11.57) and Recife ($10.70). Rio de Janeiro, since it has a dual status as the State of Guanabara, can be compared with the others only if the per capita expenditure of respective state governments is added to that of the three cities just named. This results in the following per capita expenditure: São Paulo, $112.11; Rio de Janeiro, $82.32; Belo Horizonte, $30.44; and Recife, $26.55. 54 In Colombia, per capita expenditure by the municipal governments in Bogotá and Medellín is roughly similar, with Cali’s expenditure being about half that of the other two. Again, per capita expenditure by the departmental governments does not make up for these differences.

Some of the variation in per capita city expenditure within countries, as well as among countries, is undoubtedly due to variations in per capita income. For example, although supporting data are not available, average per capita income is probably somewhat higher in Djakarta than in the other Indonesian cities examined here. Per capita figures for the states of India indicate that of the states in which the five Indian cities examined are located per capita income in Maharashtra (Bombay) is the highest and in Andhra Pradesh (Hyderabad), the lowest. Likewise, per capita income in São Paulo (state) and Guanabara (Rio de Janeiro) is about three times that in Pernambuco (Recife) and Minas Gerais (Belo Horizonte). Data for the African cities are lacking, but it seems clear that the per capita incomes in Nairobi and Lusaka significantly exceed those in the other African cities and may be partly responsible for the higher level of expenditure in these two cities.

Finally, it may be of some interest to note that for two cities similar in size, Djakarta (1971 population of 4,576,009) and Rio de Janeiro (1968 population of 4,132,000), per capita expenditure by local governments was $4.70 and $82.32, respectively. Tremendous variation exists among the cities of the world, and it is beyond the scope of this study to explain the factors leading to the differences in the numbers presented in the preceding tables.

patterns of responsibility—theory and fact

Several students of local government have stressed the tendency of former colonies to follow the local government systems of the countries that previously controlled them. 55 This is said to hold relatively true for the division of governmental responsibilities and government revenue sources. Such generalizations may prove useful for some purposes, but for comparing the systems of municipal finance in major cities of developing nations, as is done in this paper, they may prove to be seriously misleading. For example, Froomkin stated that “the British and the French models are characterized by a close reliance of municipalities on central government subsidies for the operation of current services.” 56 How close is “close” may be debatable, but the major Indian cities examined have received on average less than 5 per cent of their revenues from higher levels of government; and in Sri Lanka (which is closer than India to the British system), Colombo receives one fourth of its income as grants. A high degree of dependence on national assistance is not common among the large African cities in the former British colonies. Blantyre and Nairobi received almost no aid, and for both Dar es Salaam and Lusaka, central government aid accounted for less than 20 per cent of total revenues. In comparison, grants from the Central Government accounted for one fourth of local authority revenues in London in 1967 and for 52 per cent of revenues for all local authorities in Great Britain. 57 Generalizations concerning similarities between the French and Latin American systems are dangerous, on the same grounds. Whereas the reliance of large cities on funds from higher levels of government is great in Brazil, the Dominican Republic, and the Federal District of Venezuela, it is low for the larger Colombian cities and for Guatemala City, Mexico City, and Panama City.

A second generalization that requires careful examination is that “underdeveloped countries… under the British influence have succeeded in building up their municipal services to a higher level.” 58 It is difficult to prove or disprove this statement, as it is clear that municipal services depend on factors other than the governmental system. It is also true that municipal services may be provided by different levels of government. Nevertheless, using the limited evidence mustered in this study, a comparison of per capita expenditure in Table 7 by the municipality of Fort Lamy, Chad (French) of $14.56 with expenditure by Freetown ($15.35), Lagos ($14.17), Dar es Salaam ($11.74), and Blantyre ($8.12) yields something less than clear support for the above-mentioned proposition. Although slightly smaller than in Freetown, per capita expenditure by Fort Lamy, made possible by large grants, is greater than that of Lagos, Dar es Salaam, and Blantyre. In Lusaka and Nairobi, where per capita expenditure is much greater than in Fort Lamy, per capita incomes are also greater.

Froomkin went so far as to propose the normative model in Table 8 for the responsibilities that should be allocated to municipalities in less developed countries. To begin with, it seems unlikely that one such model would serve equally well countries with differing governmental systems (Froomkin makes much of these differences). The model clearly suggests a high degree of centralization in a developing country. It proposes the elimination of municipal responsibility (where it exists) for police, schools, welfare, and corrections. Minor services of fire protection, libraries, recreation, and sanitation would be left with the municipalities, and health, highways, and hospitals would be shared with higher levels of government. The desirability of the centralizing tendencies of this proposal is, of course, subject to the reservations discussed in an earlier section.

Table 8

Froomkin’s Model for Allocating Responsibilities to Municipalities for Current Services in Developing Countries

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Source: See Sources Used in Preparing Tables, in the Appendix, No. 2.

In contrast to Froomkin’s model, it may be of some interest to examine the actual allocation of expenditure responsibilities to municipalities. This may not indicate the most desirable division of responsibilities, but it does indicate what has proved feasible. In most developing countries, municipalities have retained some responsibility for the provision of education, although generally financial aid is received from other levels of government. The Indian municipalities of Bombay and Calcutta both have primary responsibility for elementary education, while the states are responsible for secondary education. Primary responsibility for elementary education also rests with local authorities in Egypt, Kenya, Malawi, Nigeria, the Sudan, Israel, the Republic of China, Indonesia, Korea, Thailand, and Brazil. In most of these countries, significant amounts of central government aid are provided. In Sierra Leone, the Philippines, Colombia, Panama, and Venezuela the responsibility for education is shared by municipal and higher levels of government. 59 In the Philippines, education is provided by the Central Government up through the fourth grade; after that it is left to local authorities. Zambia, Sri Lanka, Mexico, Peru, and Greece are among the countries in which education remains the responsibility of the central government. In Argentina, primary education is the responsibility of the state governments.

Municipal governments in several countries—notably Nigeria, the Sudan, India, Mexico, Peru, and Venezuela—have partially financed their police services, while in other countries—Argentina, Brazil, and Colombia—higher levels of government have provided police services as Froomkin’s model recommends. Fire protection is a shared responsibility in Freetown, Sierra Leone, and a state responsibility in Argentina; public welfare is a shared responsibility in Nigeria, Zambia, Israel, Thailand, Peru, and Venezuela—all deviations from Froomkin’s model. Libraries and recreation seem generally to be municipal responsibilities (but frequently with aid from higher levels of government), as in Nigeria, Sierra Leone, the Sudan, Israel, Sri Lanka, Mexico, and Peru. The responsibility for providing highways and streets, public health facilities, and hospitals is in most countries shared by the various levels of government, and is therefore generally in accord with the Froomkin model.

Froomkin recommended that schools be the responsibility of higher levels of government, while libraries and recreation should be the responsibility of the local government. Evidence suggests that a strong case can frequently be made for at least partial local financing of schools. Education is valued by the local population; if they can see their taxes going toward this end, they may be more willing to pay them. In addition, the close connection that exists in many countries among schools, recreation, and libraries would seem to suggest that these three responsibilities rest with the same level of government. Schools are an important expenditure, and the need for city revenues would differ significantly depending on whether or not the cities are responsible for education.

Flexibility must be expected and encouraged in the development of local systems of government. Where federalism and/or local autonomy have traditionally been strong (Nigeria, India, Brazil), there may be good reason to place responsibilities and the means of finance in the hands of lower levels of government. Poor communications and resentment of the central government may also support the decentralization of governmental authority (Indonesia, the Philippines). However, the delegation of additional authority to lower government levels must be done at the appropriate moment, and not at a time when the local government authority may be used to cause internal disruptions. In still other countries, Froomkin’s model may offer the best allocation of responsibility. Although some problems and goals may be common to all developing countries, it does not follow that any particular allocation of responsibilities to municipal governments is appropriate for even a majority of these countries.

Evidence presented in this section highlights the variations existing in the division of responsibilities among governmental levels in different countries. Factors such as the division of constitutional authority, the distribution of administrative capabilities among government levels, the degree of urbanization, and the traditional roles in society all have some bearing on the optimal division of responsibilities. 60 The fact that variations in the division of responsibilities are so great among countries rightly brings into serious question the usefulness of a rigid model.

IV. City Revenues

revenue patterns

Table 9 depicts the basic patterns existing in municipal revenues around the world. Uniformity is clearly lacking.

Table 9

Selected Cities: Sources of City Revenues, Selected Years

(In per cent)

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Sources: See the Sources Used in Preparing Tables, in the Appendix, as specified for each city. For Blantyre, see No. 25; for Dar es Salaam, No. 47; Fort Lamy, No. 10; Freetown, No. 43; Lagos, No. 31; Lusaka, No. 62; Nairobi, No. 21; Bangkok, No. 50; Djakarta, Makassar, Semarang, and Solo, No. 20; Manila, Nos. 39 and 40; Saigon, No. 60; Seoul, No. 24; Singapore, No. 44; Ahmedabad, Calcutta, Hyderabad, and Madras, No 17; Bombay, Nos. 16 and 17; Colombo, No. 45; Dominican Republic (D.N.), No. 14; Guatemala City, No. 15; Mexico (D.F.), No. 29; Belo Horizonte, Recife, Rio de Janeiro, and São Paulo, No. 7; Bogotá (D.E.), Cali, and Medellín, No. 13; Montevideo, No. 57; Valencia, No. 58; Venezuela (D.F.), No. 59; New York City and San Francisco, No. 54; and Stockholm, No. 46.

“Other Taxes” may include property taxes, etc., to the extent that these are not already specified in the sources cited.

“Other Income” may include licenses, fees, charges, etc., to the extent that these are not already specified in the sources cited.

About 69 per cent of Bangkok’s taxes are shared taxes. Since the types of tax shown are specified in the available data, they are included here according to type. For Thailand, loans are lumped with grants.

The figures for Indonesian cities are budget, rather than actual, figures.

The Vietnamese Government does make grants to municipalities; however, in recent years none has been made to Saigon Prefecture. Column (8) includes revenues from excises as well as from renting.

Taxes on property include the acquisition tax, the planning tax, the fire service tax, and the property tax.

In Singapore, 21.1 per cent of revenues comes from taxes on income, thus accounting for more than two thirds of “Other Taxes.”

In Mexico (D.F.), the automobile tax is collected only in even-numbered years.

Includes 17.2 per cent for valorization.

Includes 43.6 per cent for valorization.

Includes 17.7 per cent for valorization.

Venezuela (D.F.) does have a property tax, which accounted for 8.7 per cent of total revenue in 1958. The 1969 data that were used included real estate taxes in “Other Income.”