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Table 2 Earmarked tax: pros and cons

From: Where will the money come from? Alternative mechanisms to HIV donor funding

For Against
• Households associate the benefits of the government expenditure with the tax paid and are more prepared to pay. • Earmarking means a loss of control over total expenditure.
• Earmarking may provide a more consistent source of funds for expenditures that yield high benefits but may not be high on the political agenda, such as road maintenance. • Earmarking circumvents the budgetary process and review and may distort and misallocate funds.
• Earmarking shields expenditures from the uncertainties of legislatures that may cut spending. • Rights to earmarked revenues become entrenched with funding no longer based on agreed priorities.
  • Less transparency may lead to inefficiencies and misuse of funds.
  • Earmarking can facilitate attempts to create monopolies and abuse of monopoly power.
  • Earmarking could lead to cutbacks (or expansion) of services wholly unrelated to need.
  • Earmarking leads to less flexibility at the margin to reallocate funds when the budget is under stress.
  • Earmarking is incompatible with good cash management.
  1. Sources: [18, 19].