Fiscal Federalism

Abstract

This book provides a comprehensive account of the principles and practices of fiscal federalism based on the currently accepted theoretical framework and best practices. The traditional topics of assignment of responsibilities, intergovernmental fiscal arrangements, fiscal competition, and grants are covered in a unified framework with reference to actual practices followed in federations around the world. Special issues such as local government and the implications of natural resource issues are considered along with emerging issues such as governance, corruption, and the effect of globalization and the information revolution on the nation state. The treatment is non-technical and suitable for a wide variety of audiences, including scholars, instructors, students, policy advisors, and practitioners.

Fiscal Pressure of Migration and Horizontal Fiscal Inequality: Evidence from Indian Experience

“…It is important to note that although the Constitution provides for divided governmental functions and powers among the three levels of government, namely the Union, State, and Local Government (as laid out in Schedule VII, Schedule XI and Schedule XII of the Constitution), imbalances often arise between functional responsibilities and financial resources at different layers of the government often as part of the constitutional design (Bagchi, 2003a;Rao andSingh, 2004, 2006). The vertical and horizontal asymmetries arising in a federal polity as a result of differences in functional responsibilities and financial resources among the subnational governments have been studied extensively in the global context (Akerlof, 1969;Boadway, 1992;Oates, 1999;Weingast, 2009) as well in particular context of India (Rao and Chelliah, 1996;Bagchi, 2003b;Tillin, 2006;Singh, 2007). Economic asymmetry among the States in the Indian federation is evident from the wide disparities across the Indian Statesto illustrate: in terms of area, the largest State, Rajasthan, is almost 90 times bigger than the smallest State, Goa; the State with the highest NSDP in the year 2001, Maharashtra, exceeded Mizoram's NSDP by roughly 175 times; per capita NSDP of Goa (the highest in the country) was a massive nine times larger than the lowest per capita NSDP of Bihar.…”

Tax Assignment in Selected Federations: Lessons for Nepal

“…Federal countries have adopted both separated as well as overlapped assigning tax powers among the levels of governments by constitution. The taxes assigned to the central government are not assigned to the states and vice versa (Boadway and Shah, 2009). However, there is no globally accepted model to deal with these problems.…”

“…In Brazil, VAT is levied at both the central and state levels. The subnational governments in Scandinavian countries and the United States are allowed to levy personal income tax concurrently at both the central and sub-national levels (Boadway and Shah, 2009 In most developing and transitional economies, local governments do not have significant tax collection powers. Richer and larger countries are usually more decentralized in terms of revenue assignments (Table 2).…”

“…The provinces are provided adequate autonomy both in terms of determining tax bases, rates and generate own revenue (Boadway and Shah, 2009). …”

Sponsoring A Race To The Top : The Case For Results-Based Intergovernmental Finance For Merit Goods

“…These transfers can potentially undermine local autonomy and distort local priorities if, as usually is the case, there are conditions on spending and fungibility is not feasible as would be the case for spending that receives low priority in local allocation choices. Conceptually, it is possible to design specific purpose grants that advance the grantor's objectives while preserving local autonomy by having output-based conditionality only -the so-called output-based or performance-oriented grants as advocated by Shah (2006. Box 1 4 provides a broader framework for local finances highlighting how results-based finance fits in the overall scheme of local government finances.…”