Fiscal Federalism: Issues and Policies

Imbalances between functional responsibilities and financial resources at different layers of the government are an inherent part of a federal polity. This is so because revenue-raising capacities and revenue needs of various federating units are different. The mismatch between functions and financial powers occurs partly because of changing responsibilities of different tiers of government and partly due to the dominant position of the national government in regard to taxation powers. Therefore, vertical imbalances in resources and expenditure responsibilities emerge between different levels of the government, calling fore transfer of resources from the centre to the states. In federal finance, the use of quantitative techniques is very important. In fact, policy formulation is very important. In fact, policy formulation is very much influenced by the quantitative results pertaining to extent and degree of vertical fiscal imbalances, trends in centralization fiscal imbalances, inter-state disparities in taxable capacity, tax efforts, and fiscal where quantitative methods are used is the forecast of revenue and expenditure. These are some of the major issues dealt with in this book for appropriate policy formulation.