Subnational Domestic Resource Mobilization, Innovation, and Development
September 25, 2017
Executive SummaryOver the past 15 years, the composition of development finance has undergone tremendous changes. What was previously dominated by official development assistance (ODA) provided by traditional bilateral and multilateral donors is now far more diverse with remittances, foreign direct investment, and new donors such as China entering the field. However, domestic resources—a developing country’s own taxes and other government revenue—far outweigh all these other sources. Totaling $7.7 trillion in 2012, taxes and other government revenue in developing and emerging economies were more than 60 times greater than net foreign assistance provided in the same year. Even domestic revenues in sub-Saharan Africa were about 10 times larger than foreign assistance.
Of course, this growth has not been even and the commodities super-cycle played a significant role, but it does reflect a growing middle class and improvements in domestic resource mobilization (DRM). Donors, aid recipients, and others have taken notice: at the 2015 Financing for Development conference in Addis Ababa, domestic resources were broadly endorsed as central to paying for the new Sustainable Development Goals (SDGs). As part of this agenda, donors launched the Addis Tax Initiative that made three commitments: 1) increase technical cooperation for tax/domestic revenue mobilization; 2) enhance domestic revenue mobilization to spur development; and 3) ensure policy coherence.
Much of this conversation, however, focuses on the gains that can be achieved at the national level with the very real needs of subnational governments ignored. This is understandable given that development is still largely conducted as a government-to-government transaction with bilateral and multilateral donors most comfortable with national-level governments. Indeed, the World Bank’s governance documents require that it seek the permission of the national government before it engages with subnational governments.
This is an opportune time for an increased focus on subnational DRM, especially in countries experiencing increased urbanization. With over half the world’s population living in urban areas for the first time in recorded history, city and municipal governments will be increasingly important. Financing the construction of infrastructure, access to clean water, safe housing, and security will need greater resources delivered in a timely, accountable, and transparent manner. The benefits are similar to those found at the national level: improved delivery of public goods and services will help to strengthen the bond between citizens and government and help to build greater accountability.
This paper is the result of a series of working group meetings convened by CSIS in Brussels and Washington, D.C. These meetings brought together a diverse set of stakeholders drawn from former and current bilateral donors, multilateral donors, development advocates and practitioners, and other policymakers. CSIS sought to identify the unique challenges and opportunities that exist for subnational DRM, and how innovation or technology could be applied to help subnational jurisdictions to raise greater resources. Although the barriers to raising resources at the local level are similar to those at the national level, some of the barriers are unique to the local level. With national revenue authorities responsible for collecting taxes at all levels, relatively little tends to trickle back to municipalities and provinces.
Several key themes emerged during the course of research:
- DRM is an increasingly important tool for development finance as ODA flows decrease to least-developed countries.
- Taxes in general represent an underutilized resource for the developing world; in 2013, countries in sub-Saharan Africa collected taxes worth 10 times the total ODA for all of Africa.
- Local DRM—especially in the rapidly urbanizing developing world—is as important as national-level DRM; financing the growth and success of cities will be key to supporting a growing global population.
- Emerging digital technologies provide solutions to subnational DRM questions, but require careful implementation and monitoring to ensure security, suitability for individual regional needs, and sustainability.