Pursuing Revenue Autonomy or Playing Politics? Fiscal Behaviour of Local Governments in Taiwan

Abstract

This paper critically accounts for why fiscal decentralization does not necessarily enhance revenue autonomy in the experience of Taiwan, as local governments do not pursue it. This experience is especially relevant to unitary countries that are undergoing both democratization and fiscal decentralization. This paper shows that, with inter-jurisdictional competition, democratically elected local governments are inclined to pursue tax harmonization and have little incentive to maximize taxing powers even though doing so increases own-source revenues. The local governments in Taiwan take a 'mini-max' fiscal strategy, which involves minimizing changes to own-source revenues while maximizing local expenditures. To finance increasing expenditures as a response to the demands of constituencies, local governments tend to press the central government to increase local government's tax bases, and to try to gain a greater share of intergovernmental transfers by having their administrative status upgraded. In summary, revenue autonomy is not being pursued by local governments because of political considerations. In a decentralized fiscal system, local governments can be fiscally accountable, but still irresponsible. © 2013 National Council of the Institute of Public Administration Australia.