1 News opportunities and constraints on Fiscal Decentralization in Africa Dr François Paul Yatta Coordinator LEDNA

2 1 - Fiscal decentralization and Fiscal transition Local taxation is essentially direct taxation; Property tax, tax on economic activities ; SA exception Movement of regional integration and globalization; Import and export taxation is currently in decline internal taxation revenue (Individual Income Tax, Enterprise Income Tax, property tax, etc) Central taxation is essentially indirect taxation ; Value-added Tax ; Import and export duties

3 Solution for strengthening national public finances; expansion of the VAT base to include basic goods, in particular food; Not involvement of direct taxation 2 - Fiscal decentralization and Fiscal transition The fiscal transition will not be a opportunity to strengthen local finances; Central government will not involve in internal direct taxation; The marginal costs for the improvement of the direct taxation will be very high to be fully finance by local governments

4 The African economies face, more than the others, a cyclic development 3 - Fiscal decentralization and cyclical development This vulnerability of the African economies is defined as the risk for a African country to be affected by exogenic and unforeseen factors The « Economic Vulnerability Index (EVI) published by the UN.

5 4 - Fiscal decentralization and cyclical development One of the objectives of the economic policy is to attenuate the cycles and the natural or external shocks So the budget became a crucial tool The budget policy is the privileged instrument used in this context to smooth the level of the economic activity ; More budget to build anticyclical economic policy It tend to less fiscal decentralization

6 5 - Fiscal decentralization and regional integration Movement of regional integration is taking place; In order to reach macroeconomic stabilization on a regional scale, an economic and monetary union is set up ; stabilization defined by the union must be reach by all the Member States Transfers of some budgetary powers at the regional level

7 6 - Fiscal decentralization and regional integration Members State must reach convergence Criterias Inflation; Debt ; Deficit. The arise of this new tier of governance – regional tiers – introduce some news constraints to fiscal decentralization

Fiscal decentralization and Foreign direct investment Globalization is an opportunity for African countries Attract investors : FDI has rise in African countries Be part of the Global trade South-South FDI are more important than Nord- South FDI China Taiwan, India, Malaisia

Fiscal decentralization and Foreign Direct Investment But the levy rate at the national level is being week in the same time due to : Exemptions; Tax avoidance ; The imbalance at the local level is also important due to : Exemptions not refund; Consumption of local services without paying ; Extracting mineral resources with no impact on LG

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