GLOBALIZATION, REFORM AND FISCAL FEDERALISM
Globalization has distinct effect on the
structure of public finance and the size of government as it
influences the expenditure and revenue side of the budget.
In India all layers of government centre, state and local
bodies are simultaneously interacting with foreign
government and corporation in the global economy. Broadly,
effect of globalization on the federal fiscal structure can
be two ways. First, affecting Central, State and local
government independently -economic reform will bring changes
in the size and structure of public expenditure and taxes at
central,state and local bodies. Second, globalization can
deteriorate fiscal federalism by disconcerting interaction
among the central, state and local government. In this
context the transfer system should address the growing
inequality in public expenditure, especially the inequality
in developmental expenditure and own revenue collections,
across the states while making devolution. Also there is a
need to have policies to address the growing spatial
inequality during the post-reform
period.