Analyze the horizontal tax devolution criteria adopted by recent Finance Commissions in India. Which parameter typically commands the highest weight in distributing tax revenues among states?

💡 Solution & Explanation

Income distance, which measures the gap between the per capita income of a state and the state with the highest per capita income, traditionally commands the highest weight in horizontal tax devolution to ensure equitable fiscal transfers. Other criteria include population, area, forest cover, demographic performance, and tax effort. The Fifteenth Finance Commission introduced demographic performance as a criterion to reward states that made progress in population control. These weights aim to balance fiscal equity with developmental incentives.