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Urban infrastructure financing in India: applying the benefit and earmarking principles of taxation

Author

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  • Alok Kumar Mishra

    (University of Hyderabad)

  • Prasanna Kumar Mohanty

    (University of Hyderabad)

Abstract

Cities in developing countries, including India, are the engines of economic growth and structural transformation due to their agglomeration, knowledge and networking externalities. Yet, they suffer from a serious mismatch between their functions and finances. As a result, they have been consistently neglecting core urban public facilities, critically needed for sustaining growth. This is puzzling as externalities in cities create windfall benefits to both immobile and mobile factors. Surprisingly, there is no discussion on benefit taxation, emphasised by Wicksell (in: Musgrave, Peacock (eds) Classics in the theory of public finance, Macmillan, London, 1896) and Lindahl (The justness of taxation, University of Lund, Lund, 1919), as a strategy of financing urban infrastructure. This paper suggests combining the golden rules of local public finance, principles of benefit taxation, value capture financing and earmarking, borrowing, tax increment financing and tax-sharing in the spirit of cooperative federalism to address the needs of planned urban development in India. Our conclusions apply to other developing countries as well.

Suggested Citation

  • Alok Kumar Mishra & Prasanna Kumar Mohanty, 2018. "Urban infrastructure financing in India: applying the benefit and earmarking principles of taxation," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 20(1), pages 110-128, April.
    • Handle: RePEc:spr:jsecdv:v:20:y:2018:i:1:d:10.1007_s40847-018-0059-1
    DOI: 10.1007/s40847-018-0059-1
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    Cited by:

    1. Mishra, Alok Kumar & Malhotra, Abhishek, 2020. "Financing Urban Infrastructure in India through Tax Increment Financing Instruments: A Case for Smart Cities Mission," MPRA Paper 100843, University Library of Munich, Germany.

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    More about this item

    Keywords

    Agglomeration externalities; Lindahl taxation; Tax increment financing; Goods and services tax; Earmarked benefit taxes; Urban infrastructure financing;
    All these keywords.

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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