Municipal Levies in Europe - Possible Elements of a Decentralized Levy Policy to Strengthen Municipal Autonomy

When comparing the levy policies of European democracies, significant differences become apparent—even among countries that are otherwise comparable in many respects.

This variety has its origins in the differing historical developments that led to distinctive legal systems. The distribution of competences in multilevel governance was shaped within each state, especially in the post-war period, resulting in a multitude of models for organizing public service delivery and its financial compensation across local, regional, and national levels. According to the Local Autonomy Index, Scandinavian countries grant their municipalities the greatest autonomy, while more centralized states such as Hungary, Serbia, or Greece perceive local governments less as independent decision-making bodies and more as administrative units. For this reason, cross-country comparisons are worthwhile, as even within Europe one finds systems with very different degrees of municipal autonomy.

The following brief overview gathers municipal levies (fees, taxes, charges, contributions) in several European countries. It focuses on all levies that flow directly into municipal budgets. Shared revenues from other public entities—distributed via fiscal equalization systems and other intergovernmental transfers—are excluded, since they do not enhance municipal autonomy in levy policy. For some levies, the surprising element is not their existence per se, but the fact that their revenue actually accrues to the municipality. This is a significant step toward decentralization and strengthening municipal autonomy on the revenue side.

The countries examined primarily include those of Southeastern Europe, based on the Fiscal Decentralisation Report prepared by KDZ together with NALAS.[1] France and Turkey were also added, based on an earlier project. In some cases, the examples resemble levies that exist in Austria, though not always at the municipal level.

Classification of Levies

In the table, the levies are distinguished according to two criteria:

• by topic (e.g. environment)
• by where the negative external costs take effect (“N. E. local”)

The question where the negative externalities take effect is crucial, because it shows whether revenues should be used directly at the place where damages occur. If negative externalities (i.e. costs imposed on third parties) arise within the municipality, then the levies should definitely benefit the local community and flow directly into the municipal budget. However, there are also grey areas. For orientation, each levy is referenced by its row number in the table.[2]

The levies are presented in four categories, based on two dimensions:

• Who is primarily affected by the levy?
• Are the negative external costs predominantly local?

This results in the following categories:

1. Legal entities, esternal costs local
2. Natural persons, external costs local
3. Legal entities, external costs not local
4. Natural persons, external costs not local

A clear assignment is not always possible, and overlaps occur under both criteria.

1. Municipal Levies for Legal Entities, External Costs Local

The most important category are levies on assets and activities that generate immediate external costs within the municipality.

Many municipalities impose a one-time levy on the impact of new buildings on local infrastructure (13). Any new settlement requires adjustments to the local road network. One-time compensation payments for private construction projects, calculated as a small fraction of the market price, are conceivable. Similarly, a tax on the use of public spaces (3) exists in some countries, designed as a reserve fund for repairs to cover the usual depreciation of infrastructure. The land development levy (18) is comparable to this. It must be paid in some countries along with real estate transfer tax. It acts as a solidarity contribution, individual for each municipality, and helps mitigate structural weaknesses alongside other municipal transfers.

Other possible levies in this category cover environmental externalities, especially in the case of profit-driven production. In France, for example, municipalities levy a tax on heavily polluting activities (12). Though partially passed on to the central government, it applies to hazardous and non-hazardous waste, emissions of pollutants, wastewater from chemical washing processes, as well as oil terminals and refineries. Levies can also apply to resource extraction: mineral extraction fees (5) and charges for other natural resources (7) compensate municipalities with unique local resources. Municipalities usually receive the majority of these concession fees.

2. Municipal Levies for Natural Persons, External Costs Local

Natural persons can cause local costs to the community too, especially when owning property or certain consumer goods.

An example is the levy on cars, trucks, motorhomes, or boats (15), which can flow directly into municipal budgets. In some EU countries (e.g. Romania), an annual levy is calculated based on engine power (hp and kW for electric motors) and allocated to municipalities. Another example is a municipal road levy (1), tied to vehicle ownership, which finances road depreciation. With regard to property, municipalities in some countries are allowed to impose a second-home levy (2)—a common instrument to strengthen municipal autonomy in Croatia and France. Particularly in tourist areas, this generates additional revenue for debt reduction and investment. Similarly, some countries apply a municipal tax on rental income (4), separated from income tax and paid directly to municipalities.

Property tax (16, 17) is generally a municipal levy, but its calculation varies across countries. While marginal in some, it is a major revenue source in others. Where not based on market price, it is often calculated using formulas that combine area with coefficients for soil quality, location, and land-use category. For market-value-based systems, regular reassessment is crucial. The degree to which municipalities can influence this reassessment procedures is therefore a key factor.

3. Municipal Levies for Legal Entities, External Costs Not Local

Business activity in general is also subject to various municipal levies.

Some countries impose a tax on the value added by businesses (10), comparable to the local business tax. In addition, there is an advertising levy (22), especially on outdoor advertising such as posters, billboards, or digital screens. In Serbia, a business signage tax (6) exists, levied on the display of company names or logos.

4. Municipal Levies for Natural Persons, External Costs Not Local

The income and wealth gains of citizens may also be subject to municipal levies. However, these can reduce multiplier effects, since individuals’ budgets are cut upfront, with funds reintroduced to the private economy only through municipal spending. Moreover, the link to external costs is weak. Such levies should therefore be applied with restraint.

In some countries, municipalities receive a variable share of personal income tax (19), collected with support from higher levels of government. Among the countries in this sample, Croatia, Serbia, and Montenegro apply this system. Since January 2024, Croatian municipalities have been allowed to set their own rates within certain limits (15–23.6% for the lower rate, 25–34.5% for the higher). Revenues are allocated to the municipality of either the workplace or main residence.

Levies on gifts (20) and inheritances (21) are rarely considered municipal matters, but in some EU countries—such as Slovenia, Croatia, Serbia, and North Macedonia—revenues do flow to municipalities.

Conclusion

Overall, the examples demonstrate that many well-known levies do not necessarily have to be collected at the national or regional level but can also be designed and collected locally. Strengthening municipal revenue autonomy not only opens up greater financial leeway and bolsters local self-government but also has the potential to invigorate local democracy.

Table 1: Levies at the Local Level in Selected Countries

[1] NALAS and KDZ (2025). Fiscal Decentralisation Indicators for South-East Europe. Edited By Stafa, Elton; Prorok, Thomas. 10th Edition.

[2] Not all levies listed in the table are explained in the text.