This paper arises from a rural livelihoods research project carried out in Uganda, Tanzania, Malawi and Kenya between 2000 and 2003. One of the critical findings of this project was the adverse impact that the new tax raising powers of district councils are having on the livelihoods of the rural poor. This is a side-effect of decentralisation that was not predicted by its enthusiasts, and is not given any consideration in Poverty Reduction Strategy Papers. Project findings demonstrate very clearly that to climb out of rural poverty, cash generation is indispensable, because this permits the construction of a virtuous cycle of accumulation in farm and non-farm activities. Yet district council taxes distort relative prices, shrink participation in markets, discourage investment, result in close-down of start-up enterprises, and increase the risks associated with engaging in monetary transactions of all kinds. Taxes create a disabling rather than enabling environment for rural enterprise, and they threaten to make decentralised local councils part of the problem of persistent rural poverty rather than part of its solution.
Keeping people poor: rural poverty reduction and fiscal decentralisation in Uganda and Tanzania, presented at Staying Poor: Chronic Poverty and Development Policy, Institute for Development Policy and Management, University of Manchester, 7-9 April 2003. Chronic Poverty Research Centre (CPRC), Manchester, UK, i + 20 pp.