This report provides a comprehensive analysis of the Israeli system of local government
finance, with a focus on the role of the Israeli property tax, known as the Arnona.
Local governments are financed through a combination of revenue, primarily from central
government grants and from the Arnona, which is levied on residential and non-residential
land and buildings but is based on their physical size rather than their value. The
first chapter provides a description of the Israeli system of local government finance
and compares it to local government finance in OECD countries. Using standard criteria
for the evaluation of taxes, the second chapter assess the strengths and shortcoming
of the Arnona and the intergovernmental grant system. Attention is paid to fiscal
disparities among municipalities and to the ability of the current system to provide
all Israelis with adequate and equitable access to economic and social services and
infrastructure. The final chapter presents a set of 13 policy recommendations divided
between proposals for improving the existing Arnona system and a longer-run blueprint
for a more substantial reform of the system of local government finance in Israel
based on the establishment of a value-based system of local property taxation.