By 2050 the global population will have grown to over 9 billion, at
least 70% in urban areas and virtually all growth occurring in low- and
middle-income countries. Part of the fiscal challenge facing cities is
to meet new and more acute needs created by the pressures of
urbanisation. Informal settlements and underserved slums dramatically
increase infrastructure and service deficits in poor cities. It becomes
harder for these cities to attract the kinds of workers and economic
activities needed to compete in the global economy and produce the
revenue required to support continued growth. The defining challenge for
medium and large cities in developing countries is how to raise and
deploy resources to fund the huge expenditure needs created by rapid
growth, while contributing to continued economic growth and employment.
This REA began by interviewing experts in urban finance to identify and
validate a general approach to the research question, select appropriate
methods, gather impressions on key innovations or trends in the
literature (both academic and grey). Subsequently, 98 substantive and 2
methodological studies were reviewed in the preparation of this report.
The evidence has been organised according to four broad categories of
urban finance: intergovernmental finance; own-source revenues;
borrowing; and foreign or external assistance. The strength of the
evidence base reviewed has been assessed for each revenue type, and the
concluding section includes a discussion of the overall evidence base.
The evidence points towards the importance of strengthening
fundamentals: improving the intergovernmental environment, coherent
decentralisation, improving the administration of core revenues such as
property taxes. There are innovative financing and management practices,
but in many cases these are consistent with the overall emphasis.
However, there is no single best set of interventions or sequence of
reforms. General trends such as weak revenue base and capacity, poorly
defined and incentivised intergovernmental systems, and a lack of
attention to infrastructure, do indicate some important directions.
Furthermore, innovations in municipal and urban finance in developed and
middle-income countries may be increasingly adopted by poorer cities. In
general, then, the best approach to strengthening the resource base of
these cities is to address their particular sources of weakness,
including ensuring that they are embedded in a coherent and resourced
Nixon, H.; Chambers, V.; Hadley, S.; Hart, T. Urban Finance: Rapid Evidence Assessment. ODI, London, UK (2015) 60 pp.