INTERGOVERNMENTAL TRANSFERS AND POVERTY ALLEVIATION

In this paper the design of intergovernmental transfer schemes in a fe deration is analysed, focusing on schemes that can have a significant impact on improving interpersonal distribution in the sense of allevia ting poverty. It is argued that states with a lower income have larger concentrations of poor persons and that their ability to combat pover ty is lower and their opportunity cost higher. Federal transfers are n ot only a cost-effective means of enabling such states to undertake na tionally optimal levels of poverty alleviation but also a way of ensur ing that they actually do so. The distribution of intergovernmental tr ansfers in India during the seventh five-year plan is examined, and it is argued that general-purpose and specific-purpose transfers were in adequate and imperfectly designed from the perspective of poverty alle viation.