Recommendations of the Thirteenth FC on Tax Devolution and Grants –Implications for Equity and Incentives
Journal Title: International Journal of Economics, Commerce and Research (IJECR) - Year 2017, Vol 7, Issue 4
Abstract
As per the Terms of Reference for the Thirteenth Finance Commission, the commission has been mandated to recommend a share of the net proceeds of taxes& duties of the Union Government and allocation between the states of such proceeds for the award period 2010-2015. The intergovernmental transfers, their rationale, relative merits and demerits have gained wide currency in the literature of fiscal federalism. The reasons commonly advocated in the theory of public finance to justify revenue transfer from the centre to the federal units may be schematized into three categories. Firstly transfers are imperative to redress the vertical imbalance or the fiscal gap that stems from the asymmetric organization of functions and tax powers among different jurisdictions. Secondly matching grants are provided by the central Govt. so that public goods are produced to the socially optimal level. Thirdly transfers from the centre are mandated to ensure fiscal equalization among the states in the interest of both equity and efficiency. The present paper is a modest attempt to examine the last category of transfers that signifies the horizontal imbalance- the equalization grants, which constitute the bulk of the transfers in many federations including India. Such transfers are supposed to be more controversial as they involve the perceived conflict between equity and efficiency and inter se sharing instead of being progressive often becomes more regressive and accentuates regional disparities.
Authors and Affiliations
Anita Tyagi
Keywords
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