Urban infrastructure financing in India: applying the benefit and earmarking principles of taxation

Alok Mishra () and Prasanna Kumar Mohanty
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Prasanna Kumar Mohanty: University of Hyderabad

Journal of Social and Economic Development, 2018, vol. 20, issue 1, No 5, 110-128

Abstract: Abstract Cities in developing countries, including India, are the engines of economic growth and structural transformation due to their agglomeration, knowledge and networking externalities. Yet, they suffer from a serious mismatch between their functions and finances. As a result, they have been consistently neglecting core urban public facilities, critically needed for sustaining growth. This is puzzling as externalities in cities create windfall benefits to both immobile and mobile factors. Surprisingly, there is no discussion on benefit taxation, emphasised by Wicksell (in: Musgrave, Peacock (eds) Classics in the theory of public finance, Macmillan, London, 1896) and Lindahl (The justness of taxation, University of Lund, Lund, 1919), as a strategy of financing urban infrastructure. This paper suggests combining the golden rules of local public finance, principles of benefit taxation, value capture financing and earmarking, borrowing, tax increment financing and tax-sharing in the spirit of cooperative federalism to address the needs of planned urban development in India. Our conclusions apply to other developing countries as well.

Keywords: Agglomeration externalities; Lindahl taxation; Tax increment financing; Goods and services tax; Earmarked benefit taxes; Urban infrastructure financing (search for similar items in EconPapers)
JEL-codes: O18 R31 R51 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s40847-018-0059-1

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