Abstract
It has been observed that South Africa's lump sum unconditional transfer to municipalities, known as the Local Government Equitable Share (LES), has been gradually increasing at a higher rate than operating revenue from service charges and property tax. The key objectives of the LES is to assist municipalities in funding their administrative and governance functions, as well as to enable municipalities to provide more quality goods and services by supplementing operating revenue. Despite the increase in LES observed by municipalities, South Africa has seen an annual rise in service delivery protests and debt owed to municipalities for services provided. Such trends raise questions about the efficiencies in local government revenue mobilisation and performance. This minor dissertation intends to assess the impact, if any, that the LES grant has on municipal own revenue generation. More specifically, the research aims to understand whether the increasing LES allocation contributes to municipalities forgoing their revenue collection responsibilities, offering tax breaks to their constituents or increasing tax collection efforts. This minor dissertation contributes to literature within this field by introducing municipal consumer debt as an additional measure of local revenue performance, improving the robustness of the analysis. The analysis uses a panel dataset consisting of 127 South African municipalities for the municipal financial period of 2004/05 to 2015/16. To undertake this analysis, fixed effects and random effect panel estimation techniques were employed. The estimation results find that the LES is statically significant and positively correlated to municipal operating revenue. The analysis also finds that the LES has no statistically significant relationship with municipal consumer debt. This suggests that the LES may not have contributed to poor local tax collection and revenue mobilisation over the period.
M.Com. (Development Economics)