Inter-governmental grants and transfers are financial mechanisms used to transfer funds from one level of government to another within a country’s governance system.
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These transfers aim to promote fiscal equalization, improve service delivery, and ensure balanced regional development. There are two main types of inter-governmental grants and transfers:
Vertical transfers occur between different levels of government, such as from the central government to state governments or from state governments to local governments. The objective is to address fiscal imbalances and provide funds for devolved responsibilities. Examples of vertical transfers include grants for infrastructure development, education, healthcare, and poverty alleviation.
Horizontal transfers, on the other hand, take place between different regions or local governments within a level of government. Their purpose is to reduce fiscal disparities and promote equity among regions. Common forms of horizontal transfers include revenue-sharing arrangements, equalization grants, and specific-purpose grants targeted at underdeveloped or disadvantaged areas.
Inter-governmental grants and transfers play a crucial role in ensuring financial sustainability, promoting cooperation between different levels of government, and fostering balanced development across regions. These mechanisms contribute to the overall well-being and equitable growth of a country’s urban and regional areas.