Urban finance: rapid evidence assessment

Research reports and studies
June 2015
Hamish Nixon, Victoria Chambers, Sierd Hadley and Tom Hart

Increasing urbanisation means that, by 2050, 70% of the global population will be concentrated in cities. This poses a significant challenge: raising and deploying resources to fund the huge expenditure needs created by rapid growth, while contributing to continued economic growth and employment.

This paper reviews 100 studies on this theme, organised into the following categories of urban finance: intergovernmental finance; own-source revenues; borrowing; and foreign or external assistance.

The evidence suggests that strengthening fundamentals is important: 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.

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