Causes and Consequence of Fiscal Imbalance In Nepal: (The Case Study of Three Districts: Mugu, Gorkha and Rupandehi)

This research paper examines the interrelationship between fiscal inequality and fiscal independence in context of Nepalese local self governing system. The key issues regarding the impact of fiscal imbalance on local self governance system are discussed in detail. The study revealed various factors that create the fiscal imbalance such as limited tax authorities, overlapped different types of overheads, capabilities of local government, low political willingness and other geo-political factors. Governmental procedures to overcome financial imbalances are analyzed. This paper looks at the consequence of intergovernmental fiscal transfer with conditional instruction on local self governance system. On the basis of concrete evidence, the study shows that how it helps to minimizing the fiscal gap and increases the local self reliance. It also establishes the important role of local self governance in decentralization process. At the end, the study recommends some policies to policy makers so that the fiscal decentralization process in Nepal would be more fruitful in the days to come.