The Impact of Intergovernmental Transfers on Own Local Revenue Generation: A Comparative Study between Uganda and Egypt

Abstract

: The literature of fiscal Decentralization indicates how the design of intergovernmental transfer systems has a strong influence on the behavior of local governments. The Empirical results on the relationship between transfers at the central level and revenue mobilization incentives differ from country to country and depend on the structure and type of transfer system in each country. As a result of the lack of sufficient financial data at the local level, this type of study rarely includes developing countries. Using comprehensive financial, economic, social, demographic and political data on Ugandan and Egyptian local governments, this paper seeks to assess the effects of financial incentives for two types of transfers: unconditional transfers defined by a formula and conditional transfers for specific purposes. The results indicate a positive effect of unconditional and conditional transfers in Uganda, but a negative effect in Egypt, suggesting that the transfer system in Egypt suffers from a defect that does not make it able to create incentives for local governments to mobilize their revenues. Egyptian local revenue is divided into: i): shared taxes, where local units share the revenue from these taxes with the central government. ii) Non-tax revenue, which are the fees and expenses collected at the local level by local staff Abd El-Wahab, (1991). The figures indicate a decrease in tax revenues as a percentage of total revenues. For the fiscal year 2017/2018 to 2019/2020, tax revenues amounted to 3.9% of the total current revenues during the fiscal year 2019/2020 compared to about 10% in 2017 /2018. Analysis of the budgets of the Egyptian governorates during the period from 2016/2017 to 2018/2019 indicates that tax revenues have decreased to the total current revenues in about 94% of the Egyptian governorates.