The Economics of Local Government Charges

Abstract

Many texts dealing with local government finance either ignore charges or deal with them only after considering intergovernmental grants and local taxation. This reflects the perceived greater importance of the alternative methods of financing local government and the emphasis, within the economics literature, on fiscal federalism. Charges are often perceived as the financing instrument of last resort. However, within conventional economic analysis, it could be expected that local taxes and grants would only be used to part-finance those services (or parts of services) which could not be wholly financed by charges because of market failure (see Chapter 1). Otherwise, the achievement of allocative efficiency relies upon consumer sovereignity being safeguarded through market mechanisms that rely on suppliers and consumers responding to product prices.

Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.

(European Charter of Local Self-Government: Article 9)