Academic journal article Theoretical and Empirical Researches in Urban Management

Fiscal Management in Dangila Municipality, Ethiopia. Performance and Policy Implications

Academic journal article Theoretical and Empirical Researches in Urban Management

Fiscal Management in Dangila Municipality, Ethiopia. Performance and Policy Implications

Article excerpt


Financial responsibility is one of the core components of decentralization. If local governments are to carry out decentralized functions effectively, they must have passable level of revenue either raised locally or transferred from the central government as well as the authority to make decisions about expenditures. Given its attractiveness, it is not by coincidence that a myriad of fiscal reforms have been adopted by many governments across the developing nations. In many cases however, the results have been appalling owing to a multitude of challenges especially at the lower tiers of government.

In Ethiopia, such fiscal reforms were instigated in 1991 and almost all local authorities have since then been given the responsibility of financial management. Because of the semi-autonomous nature of the various local authorities, the implementation level and structures of financial responsibilities has tended to vary from place to place.

According to World Bank (1998) municipal governments were established in Ethiopia from the early 1940's as local governments with defined territorial jurisdiction and functions. Revenue collection from own-sources and spending are among the key activities that must be borne by local municipal government of Ethiopia. But in carrying out these activities efficiently and effectively, there are problems that should be unraveled. Poor revenue collection and low levels of expenditure management are key tribulations that need close investigation and improvement. Meagerness in revenue collection and expenditure management leads to financial incapability such that public infrastructure and services could not be financed sufficiently.

Dangila municipality is one of the Ethiopian local authorities that faces the problem of financial capacity to deliver infrastructure and services to its citizens. The major causes of inadequate financial capacity of municipalities among others are poor revenue collection and low level of expenditure management. It is interesting to know what the driving factors are in this case. Therefore, the main focus of this study is to assess efficiency and effectiveness of revenue collection and expenditure management of Dangila Municipality; which is found in Amhara regional state of Ethiopia. Along with this primary objective the study specifically aims to;

* assess the effectiveness of the municipality's revenue collection system based on selected year's performance,

* examine the efficiency in the allocation of financial resources based on specific years expenditure,

* evaluate methods or strategies designed for revenue collection as well as determining the expenditure pattern, trend and performance of revenue collection and expenditure management.


Efficiency and effectiveness were originally industrial engineering concepts that came in the early twentieth century, often considered synonyms, along with terms like competency, productivity and proficiency. However, in more formal management discussions, efficiency and effectiveness take on very different meanings. In the context of process reengineering efficiency is defined as the degree of economy with which the process consumes resources--especially time and money while effectiveness is how well the process actually accomplishes its intended purpose (Lon Roberts, 1994).

Revenues include receipts of the government from parties outside the government, primarily from tax but also from fees and other sources (Anderson, 2003). Current revenues do not always match current expenditures. As a result, there may be either a surplus or deficit. In the case of a deficit, the government is spending more during a particular period than it is receiving in revenues from taxes and other sources. A government can raise taxes in order to fully fund expenditures.

Giugale and Webb (2000) state that sub national governments must have their own revenues that are adequate to cover their current expenditure effected by their own actions, especially by changing tax rates, but also imposing new taxes, by changing the tax bases and by varying administrative effort. …

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