International Conference

Topic : Structural Reforms for Inclusive Development

This paper scrutinizes the role of federal fiscal transfers and grants to  provinces of Pakistan to see whether these are intended to reduce inequality  among federating units and thus fiscally equalizing or the system of transfers exacerbates inter jurisdictional inequities in the provision of public  ervices.  This will be an important addition in the existing empirical literature in Pakistan as it covers all four forms1 of explicit federal fiscal  ransfers as well as three additional cumulative categories based on the conditional and unconditional characteristics of transfers. Earlier, Pasha, Pasha & Zubair (2010) in the context of Pakistan has (have) examined the equalization role of federal transfers accessible to provinces on the recommendations of NFC awards and have ignored other explicit federal transfers/grants which have been available to provinces in the form of conditional development grants as well as unconditional non development grants from federal consolidated funds Non-development grant from federal consolidated funds is generally intended to finance provincial revenue deficits, and to meet provincial emergent needs. This analysis thus is an extension of previous work and focuses on all transfer funds allocated to provinces by federal government and also covers all NFC Awards during the period 1972-73 to 2008-09.

To evaluate the role of transfers as an instrument of fiscal equalization to reduce inter-provincial inequalities in the public service provision, a Fiscal Equalization Index (FEI) is computed for all the pre and post NFC award period. The paper is organized as follows. The next section provides a brief description of the various flows of federal fiscal transfers to provinces, its magnitude and provincial shares. Theoretical issues on fiscal equalization and the methodology for computing FEI are furnished in sections 1.3 and 1.4 respectively. Empirical findings of equalization are presented and discussed in section 1.5, while the last section provides the conclusion and policy implications.