An appraisal of fiscal decentralization in Pakistan


Fiscal federalism is a controversial issue in Pakistan. Because the major heads of the revenue collection are in the federal government control, from divisible pool, these resources are then distributed between federal government and provinces. Over time, federal government has taken most of the functions that were earlier assigned to provincial governments. This hunger of power has created the controversy between federal government and provincial governments and also among the provinces over distribution of resources. Present study analyzes this issue by using the provincial data of the revenue and expenditure. Study finds that Punjab the most populous province enjoys fiscal decentralization, followed by Sindh. However, the other two smaller provinces Khyber Pakhtoonkhwa and Balochistan are dependent on the central government because of their relatively small population and hence they get low revenue share from the divisible pool. It is suggested that smaller provinces should enhance their efforts to further stimulate the provincial revenue collection; moreover, the federal government should give more control over the natural resources to the provinces.

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    ABSTRACT: This study evaluates whether India, Pakistan, and Sri Lanka minimized the welfare cost of their fiscal policies? For this purpose it tests tax smoothing hypothesis and finds that there is a weak tax smoothing in Pakistan and Sri Lanka whilst fiscal policy in India has not been conducted in an optimal fashion in accordance with the predictions of the hypothesis. The difference in results is due to difference in budget deficits as the deficits of Pakistan and Sri Lanka are higher as compare to India so they are careful to reduce volatility in budget deficits by trying to keep close correspondence between taxes and expenditures while India, with comparatively less deficit, was more careful regarding its debt. Therefore, to minimize the cost a close correspondence between permanent expenditure and taxes are required. In this context the best policy option would be an initiation of prompt action program of tax base expansions and expenditure rationalization.
    Full-text · Article · May 2013 · Quality and Quantity