Fiscal Equalisation Among Provinces in the NFC Awards

In: The Pakistan development review: PDR, Band 49, Heft 4II, S. 563-576

Abstract

Fiscal equalisation refers to attempts within a federal system
of government to reduce fiscal disparities among jurisdictions, which
emerge due to variation in sub-national jurisdictions ability to raise
revenues to meet the public expenditure needs of their residents. This
is because of an imbalance in the assignment of revenue sources to
sub-national levels and their expenditure needs, given the allocation of
the inter-governmental fiscal powers and responsibilities. In the
Pakistani context, the need for transfers is highlighted by the fact
that while provincial governments generate only about 8 percent of total
national resources, their share in total public spending is 28 percent.
Also the fiscal capacity of the four provinces varies, with the
relatively more developed provinces being able to self-generate a higher
proportion of their resource requirements. As such, transfers take
place, according to the provisions of the National Finance Commission
(NFC) awards, with the objective of removing both vertical and
horizontal imbalances between own-revenues and expenditure.