Structuring Intergovernmental Grants to Local Governments: Lessons from South Africa

South Africa has been going through a period of transition over the past three years as it changes its system of public finance from a structure suited to the old apartheid system to one consistent with the new South African Constitution. While the former system was highly centralized, the new constitution makes a clear commitment to municipal governments as important providers of government services, with greater tax and spending powers. Even as local autonomy has been substantially increased, there remains uncertainty as to the most appropriate design of a system of intergovernmental fiscal grants to metropolitan areas and townships.