18 _Policy, Planning, and Research Working Paper Series_ full-scale breakdown of the financial system.

This is a background paper for the 1988 World Development Report. Please contact Rhoda Blade-Charest, room S13060, extension 33754.

## 41. Urban Property Taxation In Developing Countries

## William Dillinger

_The property tax can be an efficient, equitable means of financing municipal services in developing countries, but in most countries it needs reform._ The property tax is the most widely used source of municipal tax revenue in the developing world, but its current yield is often insubstantial.

Poor policy often sets tax rates too low, offers excessive exemptions, and fails to adequately respond to inflation. Poor administration results in incomplete taxrolls, haphazardvaluations, and low collection efficiency.

Toincreasetheyieldandimprove the fairness of the tax, both the policy and administrative problems must be addressed. Tax reform too often consists of a one-time general revaluation or rate increase. Taken alone, neither has a sustained impact on the property' tax's performance.

Tax policy must ensure that rates are set high enough to make the tax worth collecting. Where significant inflation exists, a policy of annual adjustments in rates or valuations should be instituted.

Administrative reforms should support simple procedures for property discovery and valuation, suited to the characteristics of the local tax base and the skills to the taxing authority. Procedures for updating property records to reflect changes in the tax base deserve particular attention. Collection systems should be designed to make compliance convenient; and noncompliance subject to costly, swift, and sure penalties.

Central governments can achieve reform on a nationwide scale - even where the property taxislocally administeredby delivering standardized packages of training and technical assistance to local governments.

This is a background paper for the 1988 World Development Report. Please contact Rhoda Blade-Charest, room S13060, extension 33754.

# 42. Government **Pay and** Employment Policies and **Government** Performance In **Developing** Economies

## David L. Lindauer

_Excessivespendingonpublicemployment has contributed signicantly tofiscal crises in many developing nations. Less visible, but also important for development, is the impact ofpay and employment policies on government performance._ Governments should pay more attention to the influence of pay and employment policies on their ability to provide goods and services efficiently.

Rapid and sustained expansion of government employment is common in developing nations. Governments often find it politically difficult to dismiss public workers, even in the face of rising deficits.

An increase in public employment without a commensurate increase in complementary inputs can add to labor redundancy. Increases in salary costs may also crowd out expenditures for materials, equipment, construction, infrastructure, and other inputs.

Many governments use publicjobs as a means of lowering urban unemployment. This frequently results in a bottom-heavy structure, with employment concentrated in lower salary grades, and far too many workers for managers to use effectively.

Itis also common for governments, in times offiscal crisis, to reduce the relative pay of more skilled and experienced personnel rather than fire less skilled and redundant labor. This prompts some managers and professionals to quit and leads others to reduce their work effort or moonlight. It also takes a toll on civil service morale and discipline.

Arecent study ofgovernment policies in Sub-Saharan Africa found, for example, widespread declininglevels ofreal pay, especially at higher salary grades, and excessive compression of the government pay structure. These policies have contributed to growing government inefficiency.

Govemment employment practices need to be reformed not only because growing wage bills are outpacing tax and export revenues, but also because effective public administration is soimportant to development. In many countries, a smaller, better-paid civil service might outperform a larger, more poorly paid work force. Because govemment economic and social roles are so large in many countries, better performance would mean faster development.

This is a background paper for the 1988 World Development Report. Please contact Rhoda Blade-Charest, room S13060, extension 33754.

## 43. **Tax Administratlon In Developing** Countries: **Strategies and Tools** of **Implementation**

## Tax Administration Division

## (TO COME)

## 44. **The Size and Growth of Government Expenditures**

David L. Lindauer _Over the last 20 to 30 years government spending as a share of GDP has grown worldwide. But in comparing developing and developed nations, the current levels, growth rates, composition, and determinants ofgovernment expenditures exhibit significant differences._ The growth ofgovernmentin the developing economies is compared with the experience ofthe industrial countries. Relying on measures of government expenditure as proxies for government size the following is observed:

* In the developing nations, central govemment expenditures as a share of GNP range from 10.8 percent to 62.1 percentandexhibitgreatervariancethan is found in the industrial countries.

* Developing economies, especially the low-income nations, devote, on average, smaller percentages of GDP to govemient spending than do OECD countries. But compared with the historical experience of the industrial nations, low and middle income nations already consume much higher fractions of GDP.

* For the last 20 to 30 years, expansion in the share of government spending as a percentage of GDP appears to have been the norm in both developing and developed countries.

* Transfer payments in developing nations are still at low levels when compared with advanced economies but appear to be growing quickly. Government consumption expenditures tend to be