Determinants of Own Revenues in Urban Local Bodies: Evidence from an Indian State

Our objective in this article is to understand the determinants of sustainable (own source) revenues of cities and empirically estimate it in the context of an econometric model. This article makes an attempt to understand the determinants of own revenues for ULBs in India, taking the case of a prominent state, Karnataka. We empirically examine the determinants of own source revenues, controlling for endogeneity of several variables, using valuable data for cities in Karnataka, a representative Indian state. We find that higher city per capita incomes and effective literacy rates lead to a large tax base for the city economy. Road length has a positive effect on the city’s tax base, presumably as it leads to accessing jobs easily and increased economic activity, which also gives the public more confidence and motivation to pay taxes. Per capita grants lead to higher own source revenues for the city. The policy implications are to educate the workforce in the cities better, and invest in roads, rather than viewing them as expenditure.