This chapter focuses on state coordination brought about by the relationship between central and local governments, using local tax collection as a practical example. The dominant fact discussed in this chapter is the vacillation of the Tanzanian government between deconcentration, with centrally appointed civil servants in charge of local affairs, and full devolution to local governments. An ambitious local government reform was voted through in 1998, but never fully implemented. Responsibility for the collection of the property tax has changed three times in the last decade. As capacity is clearly missing at a local level, tax collection should optimally be under the central government for the time being. It is suggested that oscillating responsibilities in the recent past reflect hidden rent-seeking competition between local politicians, central government tax collectors, and ruling party members. In effect, corruption has been observed with both central and local tax collection. An important conclusion that comes out of the chapter and the discussion by Jan Willem Gunning is the role of capacity in the design of institutional structures in developing countries.