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.
Thus, the transfer system can promote efficiency in the public sector and can level the field for intergovernmental competition.
The discussion of fiscal imbalance and equalisation was of particular importance in the drafting of the new
Iraqi constitution
The Constitution of the Republic of Iraq ( Kurdish: دەستووری عێراق) is the fundamental law of Iraq. The first constitution came into force in 1925. The current constitution was adopted on September 18, 2005 by the Transitional Nati ...
. 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.
See also
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Fiscal federalism
As a subfield of public economics, fiscal federalism is concerned with "understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government" (Oates, 1999). In other word ...
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Equalization payments
Equalization payments are cash payments made in some federal systems of government from the federal government to subnational governments with the objective of offsetting differences in available revenue or in the cost of providing services. Many f ...
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Cyclical asymmetry
Cyclical asymmetry is an economic term that describes any large imbalance in economic factors occurring for purely-cyclical reactions by a market or nation. That may include employment rates, debt retention, interest rates, bond strengths, or stock ...
Nations:
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Fiscal imbalance in Australia
The fiscal imbalance in Australia is the disparity between the revenue generation ability of the three levels of governments in Australia relative to their spending obligations; but in Australia the term is commonly used to refer more specifically ...
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Fiscal imbalance in Canada
Fiscal imbalance (French, ''déséquilibre fiscal'') is the term used in Canada to describe a monetary imbalance between the Canadian federal government and the provincial governments.
According to the fiscal imbalance theory, the federal governm ...
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Fiscal imbalance in Nigeria
The economy of Nigeria is a middle-income, mixed economy and emerging market with expanding manufacturing, financial, service, communications, technology, and entertainment sectors. It is ranked as the 53rd-largest economy in the world in ter ...
Further reading
* Bird, R. M. (2012)
Subnational taxation in large emerging countries: BRIC plus one International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1201, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
References
{{DEFAULTSORT:Fiscal Imbalance
Fiscal federalism
Fiscal policy
Federalism