Determining General and Specific Purpose Transfers: An Integrated Approach

This study attempts to provide an alternative methodology to calculate the horizontal equalization transfers. This methodology follows the Australian horizontal equalization principle using a panel model methodology where both revenue and expenditure side considerations are involved. First, it applies the Canadian model in calculating the fiscal capacity equalization. Then the expenditure side equalization has been carried out for two services - education and health. Results of the exercise indicate that the transfers suggested by the panel model are more progressive than the TFC recommended transfers.