Municipalities shoulder the burden of creating business-friendly environments – managing infrastructure, navigating public resistance, and investing countless hours in smoothing the path for economic development. Yet, the rewards often flow elsewhere. Local taxes on economic activity offer a powerful solution. While a thriving local economy boosts budgets, different taxes shape municipal decision-making in distinct ways. This report examines how various type of taxes can serve as rewards for local economic development. To compare municipal tax revenues across countries, it introduces three dedicated indicators. To illustrate real-world impact, three case studies demonstrate how the sharing of direct taxes can catalyse local growth. Furthermore, there are strong indications that voluntary tax compliance rises when revenues remain local. In other words, rewarding local governments through tax sharing is a potential driver of both economic growth and fiscal compliance – benefiting citizens, businesses, and governments at all levels.

PREYER Elisabeth;  KALCHEVA Desislava;  CURTALE Riccardo;  TUCCI Michele;  KUČAS Andrius;  BEL Germà;  DAMIAN Alexandru Cristian;  ŁUKOMSKA Julita;  ŠĶILTERE Sanita;  CHTIOUI Matthieu;  HESSE Mario;  STARKE Tim;  LYYTIKÄINEN Teemu;  LOIACONO Luisa;  SECOMANDI Riccardo;  GASTALDI Francesca;  FERREIRA Joana;  SIRVYDIS Viktoras;  KÁLMÁN Judit;  KÄÄRMANN-LIIVE Kaimo;  RUNTIC Dario;  PETROVICI Norbert;  HOULBERG Kurt;  RAMBERG Ulf;  TURLEY Gerard;  HERRMANN Benedikt;  AGUNDEZ GARCIA Ana;  VON EHRLICH Maximilian;  SEDMIHRADSKÁ Lucie; 

2026-05-04

Publications Office of the European Union

JRC145286

978-92-68-37451-1 (online),   

1831-9424 (online),   

EUR 40639,    OP KJ-01-26-065-EN-N (online),   

https://publications.jrc.ec.europa.eu/repository/handle/JRC145286,   

10.2760/1826247 (online),