IDEAS home Printed from
   My bibliography  Save this paper

A fiscal needs approach to equalization transfers in a decentralized federation


  • Shah, Anwar
  • DEC


The author reviews the conceptual basis for fiscal equalization transfers, analyzes the theoretical implications for optimal design of equalization transfers, and suggests quantitative approaches for assessing the fiscal needs of subnational governments and determining their entitlement to transfers. The author illustrates proposed methods using data for local and provincial Canadian governments. The proposed methods could be useful tools, he says, for undertaking systematic objective reviews of aggregate and sectoral public spending in developing countries. The author argues that in a decentralized federation, fiscal inefficiencies and inequities arise because of subnational governments'differing levels of ability to provide comparable public services at comparable tax rates. Fiscal equalization transfers that reduce or eliminate differentials in net fiscal benefits create a rare instance in economics when considerations of equity and efficiency coincide. These transfers must allow for differences in the spending needs and revenues-raising abilities of the various subnational governments. The author argues for a two-tiered approach to equalization. The first tier would be a federal responsibility to equalize the burden of federal taxes. The second tier would be an interprovincial equalization fund to be administered by the Council of Provincial Finance Ministers. It would entail a comprehensive equalization system that takes into account provincial spending needs. The standard of equalization would be negotiated.

Suggested Citation

  • Shah, Anwar & DEC, 1994. "A fiscal needs approach to equalization transfers in a decentralized federation," Policy Research Working Paper Series 1289, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1289

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Chang Woon Nam & Rüdiger Parsche & Matthias Steinherr, 2001. "The Principles of Parallel Development of Fiscal Capacity between State and Municipalities as Useful Benchmarks for the Determination of the Inter-governmental Grants in Germany," European Planning Studies, Taylor & Francis Journals, vol. 9(4), pages 525-537, June.
    2. Francois Vaillancourt & Richard M.Bird, 2004. "Expenditure-Based Equalization Transfers," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0410, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Jun Ma, 1997. "Intergovernmental fiscal transfer in nine countries : lessons for developingcountries," Policy Research Working Paper Series 1822, The World Bank.
    4. Peter Friedrich & Anita Dehne & Chang Woon Nam, 2004. "Significance and Determination of Fees for Municipal Finance," CESifo Working Paper Series 1357, CESifo Group Munich.
    5. Chang Woon Nam & Rüdiger Parsche, 2001. "Municipal Finance in Poland, the Slovak Republic, the Czech Republic and Hungary: Institutional Framework and Recent Development," CESifo Working Paper Series 447, CESifo Group Munich.
    6. Peter Friedrich & Anita Kaltschütz & Chang Woon Nam, 2004. "Recent Development of Municipal Finance in Selected European Countries," ERSA conference papers ersa04p288, European Regional Science Association.
    7. Olga Lucía Acosta N. & Israel Fainboim & Catalina Gutiérrez S. & Blanca Cecilia Zuluaga D., 1999. "Relaciones fiscales entre el Distrito Especial de Bogotá y la Nación," COYUNTURA SOCIAL 013094, FEDESARROLLO.
    8. World Bank, 2007. "China : Improving Rural Public Finance for the Harmonious Society," World Bank Other Operational Studies 7664, The World Bank.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1289. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.