Fiscal imbalance

From Wikipedia, the free encyclopedia

Remove ads

Fiscal imbalance is a mismatch in the revenue powers and expenditure responsibilities of a government.

Fiscal imbalances as differences in net fiscal benefits

A fiscal imbalance emerges when sub-national governments have different abilities to raise funds from their tax bases and to provide services. This creates differences in ‘net fiscal benefits’, which are a combination of levels of taxation and public services. It is these NFBs which are the main cause of horizontal fiscal disparities that in turn generate the need for equalization grants. Prominent among the objectives commonly attributed to intergovernmental fiscal transfers is ‘equalization’ of fiscal capacities or resolution of fiscal imbalances.[1]

Thus, the transfer system can promote efficiency in the public sector and can level the field for intergovernmental competition.[2] The discussion of fiscal imbalance and equalisation was of particular importance in the drafting of the new Iraqi constitution. It was a sticking point for the drafting process—with the oil rich regions seeking to minimise the reallocation of revenue while other regions sought to maximise equalisation payments.

Remove ads

See also

Nations:

Further reading

References

Wikiwand in your browser!

Seamless Wikipedia browsing. On steroids.

Every time you click a link to Wikipedia, Wiktionary or Wikiquote in your browser's search results, it will show the modern Wikiwand interface.

Wikiwand extension is a five stars, simple, with minimum permission required to keep your browsing private, safe and transparent.

Remove ads