Fiscal decentralization is one component of decentralization that gives authority to local governments to collect revenue through taxes and responsibility over spending decisions. Even though fiscal decentralization has given revenue raising and spending decision powers to lower levels of government, the implementation process has often been a daunting task for many local authorities in the developing world. In the case of Ethiopia, decentralization has been implemented since 1991. However, revenue raising and expenditure management are not efficiently and effectively exercised, especially in lower level government units of Ethiopia. Insufficient revenue collection and reprehensible expenditure management leads to financial incapability such that public infrastructure and services could not be financed amply. Dangila municipality faces the problem of financial capacity to deliver infrastructure and services to its citizens. While a number of studies have documented the financial incapacities of Ethiopian municipalities, they have been very shy to articulate the discrepancies and deficiencies that link financing to service delivery. It is interesting to know what the driving factors are in this case. Therefore, the main focus of this paper is to assess the efficiency and effectiveness of revenue collection and expenditure management of Dangila Municipality. To obtain edifying data the paper used a positivist survey study. Municipality financial documentation and questionnaires were the main sources of secondary and primary data respectively. Parametric descriptive statistical methods were applied in the analysis of data to arrive at measures of efficiency and effectiveness in revenue collection and expenditure management of the municipality. The study revealed that the municipality is not efficient and effective in its revenue collection and expenditure management. The main explanation for such inefficiency comprise; derisory assessment of taxable sources, poor organizational structure, inadequate accounting system, absence of clear operational guidelines, poor planning and data base management, lack of awareness by taxpayers and lack of skilled manpower. To resolve such challenges, we recommend the following actionable measures; widening the revenue base of local sources of revenue, improving planning and implementing capacity, establishing adequate data base systems, continuous awareness creation for taxpayers, establishing appropriate guidelines and methods of revenue collection, revision of the tariff structure regularly, installing accounting system that produces timely and reliable information, encouraging community participation in planning and resource allocation and municipal restructuring that take into account needs and welfare of employees. Classification-JEL: R53, R42
