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Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations

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  • Sharma, Chanchal Kumar

Abstract

How do we know whether a country suffers from vertical fiscal imbalance (VFI)? What should be done about it? Academic appreciation of these issues in general, and the nature of political behaviour in particular, both have major implications for the way federations are fiscally structured. While the latter clearly is a problem of political negotiations, our focus is on the former, i.e., conceptual clarity, which precedes meaningful negotiations. Thus, the paper aims to clarify the multiple usages of the symbolically loaded terms VFI and VFG (Vertical Fiscal Gap) by critically engaging the fundamental assumptions and premises underlying these ostensibly similar notions. It proposes an alternative conceptual framework and introduces the concepts of Vertical Fiscal Asymmetry (VFA) and Vertical Fiscal Difference (VFD) that have the potential to better structure public debate on issues of vertical fiscal relations and stimulate a sensible appreciation of the problem and possible remedies.

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  • Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:32145
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    Cited by:

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    2. Kopańska Agnieszka, 2018. "The determinants of local public spending on culture," Central European Economic Journal, Sciendo, vol. 5(52), pages 67-80, January.
    3. Sharma, Chanchal Kumar, 2017. "Federalism and Foreign Direct Investment: How Political Affiliation Determines the Spatial Distribution of FDI – Evidence from India," GIGA Working Papers 307, GIGA German Institute of Global and Area Studies.
    4. Bev Dahlby & Jonathan Rodden, 2013. "A political economy model of the vertical fiscal gap and vertical fiscal imbalances in a federation," Working Papers 2013/18, Institut d'Economia de Barcelona (IEB).
    5. Michael Klien & Hans Pitlik & Matthias Firgo & Ulrike Famira-Mühlberger, 2020. "Ein Modell für einen strukturierten vertikalen Finanzausgleich in Österreich," WIFO Studies, WIFO, number 65854, April.
    6. Bev Dahlby & Jonathan Rodden, 2013. "A political economy model of the vertical fiscal gap and vertical fiscal imbalances in a federation," Working Papers 2013/18, Institut d'Economia de Barcelona (IEB).

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    More about this item

    Keywords

    fiscal federalism; intergovernmental relations; vertical fiscal imbalance; vertical fiscal gap; vertical fiscal gap;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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