Subnational governments in Latin America and the Caribbean must take more responsibility for generating their own-source revenue in order to promote local development and meet the growing demand for local infrastructure and services arising from growing urbanization.1 Why is greater fiscal responsibility at the subnational level desirable? First, it grants authorities greater autonomy to choose and implement their policy decisions. Second, it reduces dependence on central government transfers. Third, it increases the efficiency and transparency of spending, since when citizens pay taxes they tend to demand more accountability from their leaders.
