Local Government Revenue, Land Use, and Economic Development Policies in Serbia: The Case of Nis

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Abstract

The purpose of this note is to help both local and national government officials think through possible strategies for addressing one of the fundamental issues facing Serbian municipalities today: How do Serbian local governments increase the revenues they need to improve their public infrastructure while simultaneously creating an environment favorable to private investment and local economic development? This is a dilemma that local governments face throughout the world but which is particularly pressing in many developing and transition countries where local governments must address huge deficits in urban infrastructure without at the same time over taxing their business communities upon which their future growth depends. It is also of particular importance in Nis, the third largest city in Serbia and the economic engine of the southern and least developed part of the country.

Introduction

The purpose of this note is to help both local and national government officials think through possible strategies for addressing one of the fundamental issues facing Serbian municipalities today: How do Serbian local governments increase the revenues they need to improve their public infrastructure while simultaneously creating an environment favorable to private investment and local economic development?

This is a dilemma that local governments face throughout the world but which is particularly pressing in many developing and transition countries where local governments must address huge deficits in urban infrastructure without at the same time over taxing their business communities upon which their future growth depends. It is also of particular importance in Nis, the third largest city in Serbia and the economic engine of the southern and least developed part of the country.

The note is divided into two parts. The first part highlights the most pressing problems concerning the nature and structure of local government own revenues. Special attention is paid to the policy issues—both local and national—raised by the devolution of the property tax and other revenue collecting powers to municipalities. I also discuss the land use and land development fees; the business sign fee; the self-contribution fee; and utility pricing. I include utility prices in the discussion because while income earned by utilities from the sale of goods and services are not general budget revenues of municipalities, they are of critical importance in helping local governments meet their infrastructure needs. They also directly and indirectly affect the business community.

The second part of the note looks at these same issues in Nis today. On the one hand, I situate how Nis is using its own revenue raising powers within the larger context of what seems to be going on elsewhere in the country. On the other hand, I outline select policy directions designed to increase Nis’s own revenues and improve the local business environment.

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