ABSTRACT
Intermediate governments tend to have higher expenditure than their revenue-raising powers, while the centre tends to raise more revenue than its expenditure, thereby creating fiscal imbalance. Further there are sometimes gaps between the law in constitutions ‘law in books’ and the practice by governments ‘law in action’. The chapter applies the theory of fiscal responsibility, which allocates responsibility based on resources. Fiscal responsibility principle sees financial autonomy as an incentive for intermediate governments, which enables them to retain a part of the tax revenue generated in their territories; it balances political and financial autonomy. The chapter uses a functional approach to develop a method to measure the legal tools that put the principle of fiscal responsibility into practice. It considers own taxes, tax-power-sharing, and tax-revenue-sharing, and inherent in these, the powers to (i) impose tax; (ii) design tax structure; and (iii) determine the tax burden.
