Local resource mobilisation

A functioning state requires a functioning system of public finances

Own revenues are the most important financial source for developing countries in the implementation of the 2030 Agenda for Sustainable Development. They allow predictable planning, independent implementation of national policies (transformation to sustainable development) and independence from external aid.

Taxes form the basis for every state to finance its functions. Therefore, the design of the tax system also plays a key role in combating poverty and growing inequality. The increased mobilisation of own revenues - i.e., taxes, customs duties and levies - in developing and emerging countries, as well as their effective allocation and use, is an essential component of development financing. In addition, good fiscal policies and efficient use of resources are indispensable for growth and the promotion of equal opportunities. Both contribute to improving the framework conditions for private sector engagement and increasing the scope for additional tax revenues in the medium term. Transparent public procurement systems can significantly reduce the costs of public projects. If public investments in infrastructure are better controlled, managed and implemented, important resources may be saved. Transparency, control and integrity also play an important role, e.g., by promoting audit offices and parliamentary committees.

The Federal Republic of Germany has an efficient system of public finances, which has contributed significantly to growth and the promotion of equal opportunities for decades. It comprises several elements: An efficient revenue system ensures that tax revenues are generated through tax and customs revenues and that suitable framework conditions for economic growth are shaped. A transparent budget system ensures that scarce state resources are used effectively and benefit the population to the greatest extent possible. The Federal Court of Auditors is the external financial control body, independent of the government, which audits the accounts as well as the efficiency and compliance of the federal government's budgetary and economic management. Effective and accountable institutions also exist at the local level to ensure successful policy implementation. Comprehensive fiscal equalisation systems assist in establishing equal living conditions across the federal territory and autonomous revenue and expenditure policies are implemented at the decentralised level through the transfer of fiscal powers.

Cooperation can facilitate the mobilisation and management of domestic resources through capacity building and exchange of good practices, for example through reform of tax administration and collection to mobilise domestic revenue at national and local levels.

Within the framework of its expert network, the Governance Fund provides opportunities to share experiences on fiscal management matters to enhance the transformation of sustainable development. The Governance Fund's support services encompass moderated exchanges of expertise and experience, short-term assignments of decision-makers and experts in the partner country, study trips to Germany and workshops.


Example from Bolivia

Priority: Fiscal decentralisation

1.  Dialogue and discussion mechanisms between the state levels to negotiate financial relations

2.  An inventory of mechanisms to ensure tax revenues at diverse levels of government.

3.  Models or methods for calculating costs resulting from the allocation of competences between levels of government.



Studies on behalf of the Governance Fund

Municipal finances and municipal financial equalization in Germany

Benefits for development cooperation

2020 | Dr. Michael Thöne und Jens Bullerjahn | Governance Fonds | Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Germany’s experience with municipal finances and its municipal financial equalisation system may be of great benefit for development cooperation, though this theory is far from obvious given the complexity of some parts of the German municipal financing system. In this study we intend to show that this complexity is mainly down to the large number of institutions and processes involved. The multiple forms of municipal financing in Germany’s federalist system offer a wealth of ideas on how different policy solutions have arisen, often under highly divergent conditions. We present German municipal finances as a process of ongoing dynamic interaction between established principles and current political solutions to new challenges. The benefits of the German municipal financing system for development cooperation lie in the fact that the system can also be understood as a policy approach in conjunction with a practical toolbox.

Download [pdf, 48 pages, 1,81mb]

German version

Version française

Versión española

Reform and Future of Federal Fiscal Relations in Germany

Benefits for Development Cooperation

2018 | Jens Bullerjahn, Dr. Michael Thöne | GIZ

Germany reforms the fiscal relations between the federal government and the sixteen Länder roughly every 10 years. The most recent reform was agreed upon in 2017. A combination of political hands on experience and academic analysis, this short study examines German federal fiscal relations and analyses, to what extent the German experience can be inspiring to policy makers from the rest of the world.

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Other languages:

Reform und Zukunft des Finanzausgleichs in Deutschland

Reforme et Avenir de la Perequation Financiere en Allemagne