Fiscal Federalism in Pakistan: A Political-Economy Analysis of the National Finance Commission Award and the Limits of Provincial Autonomy

Abstract

The devolution of fiscal resources in Pakistan can be traced back to the successive National Finance Commission (NFC) Awards. Fiscal decentralization has further been reinforced with the passage of the 18^th Constitutional Amendment Act 2010. With devolution it became evident that provinces were to receive greater fiscal and administrative responsibilities. However, problems with vertical and horizontal fiscal balances, lack of tax assignment and complaints of smaller provinces receiving unequal access to resources remain relevant. This study assesses whether decentralization of finances since the passing of the 18^th Amendment has met its goals and identifies why institutions and politics, more specifically Pakistan’s civil-military hybrid political structure, have prevented provinces from obtaining complete fiscal independence. Qualitative assessment of NFC Award formula, provincial revenues and expenditures, as well as stakeholder interviews served as a tool to understand why provinces are unable to fully capitalize on the fiscal guarantees provided for by the constitution. This research provides policy relevant recommendations for establishing sustainable, equitable and transparent fiscal federalism in Pakistan.

Key Words

Fiscal Federalism, 18^th Constitutional Amendment, National Finance Commission, Provincial Revenue, Decentralization

https://doi.org/10.5281/zenodo.21725230