Intergovernmental fiscal arrangements may play an important role in ameliorating poverty in many countries. Successful poverty alleviation generally requires both 'capacity improving' and 'safety net' policies, and both types of policies may, to some extent, be implemented through, or affected by, intergovernmental transfers. From this perspective, we analyse the efficacy of intergovernmental fiscal arrangements in poverty alleviation in a transitional economy, Viet Nam. We argue that both general and specific transfers are needed for this purpose: the former to enable all provinces to provide a given basket of public services at a given tax-price by offsetting their revenue and cost disabilities and the latter to ensure that minimum levels of those public services provided by lower levels of government are targeted to the poor throughout the country.
In this paper the design of intergovernmental transfer schemes in a federation is analysed, focusing on schemes that can have a significant impact on improving interpersonal distribution in the sense of alleviating poverty. It is argued that states with a lower income have larger concentrations of poor persons and that their ability to combat poverty is lower and their opportunity cost higher. Federal transfers are not only a cost-effective means of enabling such states to undertake nationally optimal levels of poverty alleviation but also a way of ensuring that they actually do so. The distribution of intergovernmental transfers in India during the seventh five-year plan is examined, and it is argued that general-purpose and specific-purpose transfers were inadequate and imperfectly designed from the perspective of poverty alleviation.
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