A nation’s fiscal transfer system has many facets. Usually, the central government has several objectives in transferring funds to local government . Individual local governments often have objectives that conflict with the central government and with other one another. This paper looks at the relationships between policies associated with reducing vertical fiscal imbalance and the achievement of horizontal fiscal equalization, often a major national (as opposed to a central government) objective. In considering possible ways of reducing VFI, the paper discusses public sector revenue sharing and, in particular, the revenues raised from natural resources, looking at the policy issues that arise and what the considerations are when deciding how these elements of a fiscal transfer system can be combined to meet governments’ overall objectives.
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