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Unformatted text preview: s a reasonable and convenient approximation of the scale of
consumption by residents of local public services (most econometric studies confirm that consumption income elasticity
approaches 1, Guengant, 1988). The business tax would be maintained but its base would be reformed and now
coincide with added value assessed at factor cost and at the place of production.
Next, the overhauling of local taxation depends on the principle of fiscal specialization. “Marginal” specialization would
be adopted. The tax resources of each level of authority would continue to depend on various taxes (equalization of
basic risks) but the capacity to increase or decrease the rates on a given tax would be granted to only one category of
authority. This “marginal fiscal specialization” would thus combine the advantages of the security provided by a
composite fiscal resource and that of democratic transparency. 237 Commission on Fiscal Imbalance The establishment of a rate tunnel is intended to temper the (non-cooperative) strategic use that certain local authorities
would be tempted to make of the taxation weapon. The rate tunnels are narrower if the elasticity of the localized base to
the tax rate is high and if these bases are narrow in relation to the expenditures to be financed. They are all the more
readily accepted when, at the outset, the modernization of the tax bases has made it possible to further harmonize the
rates within the territory, especially as regards the business tax and the developed property tax of businesses.
The reform introduces the decoupling of local taxation (communes and intercommunal groups) and the taxation of
intermediate authorities (departments and regions), a solution that should facilitate the reorganization, indeed the
possible elimination, of one level of intermediate authority.
When these principles are combined, local taxation would be reorganized as indicated below.
♦ The communes would set property tax rates and also benefit from a broad-based, local income tax, but at a moderate set
rate. ♦ At the intercommunal level, the single business tax applicable to an urban area would become widespread. Fiscal
coordination between communes and intercommunal groups would be achieved, first of all, by means of a legal relationship
centred on the covariation of household and business rates. Second, a decisive institutional reform would round out the
French territorial reform that has been under way for half a century. Democratic legitimacy and most local jurisdictions
would be transferred to the intercommunal level, which would have a deliberative assembly elected by direct universal
suffrage; municipal councils, which would continue to be elected by direct suffrage, would become components of
community political organization. The ceiling and the vertical link between the rates would be maintained in respect of the
business tax. The linkage between household and business taxation would guarantee the coordination of communal and
intercommunal fiscal strate...
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