Urban Finance: Rapid Evidence Assessment

The evidence is organised under 4 categories: intergovernmental finance, own-source revenues, borrowing, and foreign or external assistance

Abstract

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 intergovernmental context.

Citation

Nixon, H.; Chambers, V.; Hadley, S.; Hart, T. Urban Finance: Rapid Evidence Assessment. ODI, London, UK (2015) 60 pp.

Urban Finance: Rapid Evidence Assessment

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