Political decentralization, fiscal centralization, and its consequences in case of Pakistan

Abstract

The political and fiscal institutions are arguably the most significant factors that determine the way a society operates. Some countries, such as the USA and Canada, have decentralized political and fiscal institutions, and some are centralized, e.g., China and Singapore. However, this is not true in Pakistan. This paper, first, explains that Pakistan has decentralized political and centralized fiscal institutions. It then describes how the Pakistan government and interest groups interact with each other within such an asymmetric system. Finally, it analyzes the consequences, how governments and interest groups’ interaction leads to cultural polarization, and centralization of the taxation system, which carries the public debts at the uncontrolled threshold.