Benefit Model of Local Government Finance
An approach to local government financing based on the idea that local governments should, wherever possible, charge residents for the services they provide with taxes or user fees reflecting the benefits received.
(Bird, Richard M. and N. Enid Slack. 1993. Urban Public Finance in Canada, 2nd ed. Toronto: John Wiley and Sons.)
Local governments reflecting these principles should in theory be more accountable for their expenditures for services contained within their municipal boundaries. On both efficiency and equity grounds, however, the province should be responsible for paying when there are externalities – as in for services that spillover into other municipalities, or redistributive programs where costs and needs differ between municipalities. As such, this proposition comes with two important caveats: local governments need to be granted adequate authority to generate revenues for local services; they must also be held responsible to both the residents and the higher order governments who provide the resources to pay for services.
Bird and Slack 1993, 174.