Unformatted text preview: gies and rule out the risk of fiscal inflation. Financial equalization between the basic authorities
would adapt to this new context of community management of local budgets. ♦ In order to finance social aid expenditures, in particular, the departments would be empowered to modulate the rate of a
departmental income tax centred on a broader base in a narrower rate tunnel. ♦ The definition of the fiscal specialization of the regions would be harder to define. Various observers would agree to
recognize the major economic role that the regions will be called upon to play in the future. Some options, such as a TIPP,
a VAT on petroleum products and a tax on local loopback telecommunications, would be eliminated successively. A mixed
solution, i.e. the allocation of a portion of taxes on polluting activities and the modulation of rates within a narrow tunnel set
by Parliament, and sharing with the State of a national fiscal resource would, in the final analysis, appear as a compromise
that reflects the regions’ role in the realm of sustainable development and one that is likely to allow the regions to benefit
from a “base effect” when economic conditions and the success of regional development initiatives allow for it. Broadly speaking, the thorough reorganization of local taxation would depend on specialization combined with
coordination. The taxation of households and businesses would be linked at the communal and intercommunal level.
The taxation of the departments and regions would be decoupled from local taxation in a narrow sense. These
authorities would obtain broad bases and their power to set rates would be partially amputated in aid of greater clarity for
As for State financial aid, the reform of local taxation would, first and foremost, reduce the need for relief and thus,
automatically, the corresponding transfers. Second, the broadening of the tax bases would widen the differences in fiscal
capacity between authorities because property values would be taken into account with respect to property and real
estate taxes, but would reduce them because power would be vested at the intercommunal level to differentiate the
rates of the business tax and through monitoring of leeway in respect of rates. The second effect would undoubtedly be
more important than the first, since differences in per-capita fiscal capacity between communes would be 85%
attributable to local taxes paid by businesses alone (developed property and business tax) (Guengant, in Gilbert 1997).
In any case, the map of the fiscal capacity of the territories would be profoundly altered. The system of financial
equalization between the State and local authorities must be reformed, whether from the standpoint of criteria giving
entitlement to subsidies, budgeted amounts or the type of authorities benefiting from equalization.
The reform of the financial equalization system depends on the notion of “real fiscal capacity.” Equalization seeks to
promote “territorial equity” by reducing the differences between authorities in “fiscal...
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