Why ‘Good Local Taxes’ Aren’t Working?: Implications of the Revenue Assignment and Local Fiscal Environment to Revenue-Raising Capacity (The Case of Local Governments in the Philippines)

The paper focuses on local revenue assignment and revenue-raising capacity, with the aim of identifying how the assignment of revenues to low-tiered governments impact on their capacity to generate substantial revenues. The research finds out that while the revenues assigned to local governments are deemed as ‘good local taxes’, in reality, these taxes become unstable and unpredictable sources of local income. There are several factors, e.g., administrative, financial, legal and political, affecting the way local taxes are administered and enforced at the local level. Moreover, there are very few productive or ‘good local taxes’ assigned to local governments which, in turn, limit the amount of potential revenues obtainable by local governments. In the case of the LGUs in the Philippines, there are more minor revenue sources available for the localities than major or more productive revenue sources, giving less resource for LGUs to finance local expenditures using their own revenues.