Integration, decentralization, taxation, and revenue sharing : Good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies

separate taxation
 with free competition
for the tax bases does usually not 
exist. 
Separate taxation without legislative sovereignty
at the regional or local level is 
dominating but in some federal states also partial legislative sovereignty is shifted to 
the regional and local level by allowing these jurisdictions to fix the effective tax rate 
autonomously.
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In the example of the Federal Republic of Germany the separate 
taxation is partially implemented. Table 2 shows the common taxes shared by all ju-
risdictional levels, then the federal, member states and local taxes (of the communi-
ties within the member states). The federal taxes are under the exclusive legislation 
and administration of the federation while the common taxes and state taxes are un-
der concurrent legislation of the federation (federal parliament: Bundestag) and the 
member states (2
nd
chamber: Bundesrat). The local taxes, especially the firms and 
land tax, are under separate taxation with partial legal sovereignty of the communities 
on the tax rates. 
In a 
surcharge system
usually all sovereignties (legislative, administrative and reve-
nue) are at the central level so that the tax bases as well as the tax schedules and 
rates are determined by the federation. The lower jurisdictional levels have the 
autonomy to determine a surcharge rate in self-responsibility, which determines the 
effective tax rate. This surcharge is typically defined as a certain percentage of the 
tax rate fixed by the central level. In Liechtenstein, for instance, the central state de-
termines by earnings tax law the tax schedule and the individual tax yield of the sin-
32
For instance the German communities are allowed to determine the effective tax rate of the land 
and local firm tax. 

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gle household. The communities then apply their different surcharge rates, which dif-
fer in between 170 % and 250 % of the central state’s yield. Therefore, this system is 
quite similar to separate taxation with partial legislative sovereignty. Hence, this sys-
tem has a comparatively high degree of decentralization.