Economics • Indian EconomyHard
Analyze the criteria utilized by recent Finance Commissions for horizontal tax devolution among Indian states. Which parameter typically commands the highest single weight in distributing tax revenues?
A. Income distance measuring the gap between a state's per capita gross state domestic product and the highest-income state✓ Correct Answer
B. Geographical area and forest cover incentives for ecological preservation
C. Demographic performance rewarding states for controlling population growth rates
D. Tax effort and fiscal discipline indices measuring revenue collection efficiency
💡 Solution & Explanation
Income distance is assigned the highest weight in horizontal tax devolution formulas by recent Finance Commissions to ensure progressive transfers that support lower-income states. Other parameters include population census data, forest cover, and demographic performance. These criteria aim to balance fiscal equity with developmental incentives across the federal polity.
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