Reforming IndiaÃ¢â‚¬â„¢s Fiscal Transfer System : Resolving Vertical and Horizontal Imbalances
AbstractTwo central problems in a fiscal transfer systemrelate to resolving vertical and horizontal imbalances. In the context of the setting of the 13th Finance Commission, this paper looks at the methodological background of fiscal transfers followed by recent Finance Commissions in India, particularly the Twelfth Finance Commission (TFC). It is noted that in India, there is long - term stability in the share of states after transfers in the combined revenues of the centre and the states. It is argued that this stability depends on linking the share of states in the transfers, particularly tax devolution with the difference in the buoyancies of central and states taxes. In the context of horizontal imbalance, it is argued that some of the recent Finance Commissions have implicitly followed an axiomatic approach to tax devolution and brought in some normative elements in determining grants. In spite of large difference in fiscal capacities, a high degree of equalization has been achieved. It is shown, for example, that in the case of TFC recommended transfers, nearly 88 percent of needed equalization was achieved while devoting 50 percent of transfers to resolving vertical imbalance. Amethodology is also developed to determine weights of vertical and equalizing components of transfers through devolution. In the case of the Twelfth Finance Commission, the horizontal component of tax devolution is strengthened by a scheme of equalizing health and education grants.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22509.
Date of creation: Jan 2008
Date of revision:
Contact details of provider:
Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org
More information through EDIRC
fiscal transfer system; vertical imbalance; horizontal imbalance; Twelfth Finance Commission;
Find related papers by JEL classification:
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- B. Dahlby & L. S. Wilson, 1994. "Fiscal Capacity, Tax Effort, and Optimal Equalization Grants," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 27(3), pages 657-72, August.
- Robin Boadway & Katherine Cuff & Maurice Marchand, 2003.
"Equalization and the Decentralization of Revenue-Raising in a Federation,"
Journal of Public Economic Theory, Association for Public Economic Theory,
Association for Public Economic Theory, vol. 5(2), pages 201-228, 04.
- R. Boadway & K. Cuff & M. Marchand, 2001. "Equalization and the Decentralization of Revenue-Raising in a Federation," Department of Economics Working Papers, McMaster University 2001-04, McMaster University.
- BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, . "Equalization and the decentralization of revenue-raising in a federation," CORE Discussion Papers RP, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1610, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Robin Boadway & Jean-Francois Tremblay, 2006.
"A Theory of Vertical Fiscal Imbalance,"
Working Papers, Queen's University, Department of Economics
1072, Queen's University, Department of Economics.
- Robin Boadway & Jean-Francois Tremblay, 2005. "A Theory of Vertical Fiscal Imbalance," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- repec:ind:nipfwp:35 is not listed on IDEAS
- Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 15(4), pages 613-33, November.
- Ross Garnaut, 2002. "Equity and Australian Development: Lessons from the First Century," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 227-243.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong).
If references are entirely missing, you can add them using this form.