Tax Sharing:

The central government shares a percentage of taxes under its own jurisdiction with the state governments to account for the mismatch between low revenue assignments and higher expenditure responsibilities of the state governments.  The tax sharing arrangements in the case of USA can be referred to here. Its award period covers five years.  The Finance Commission after reviewing the finances of central and state governments determines the percentage of central taxes to be devolved to the state governments.  The Finance Commission also determines  inter se distribution of central taxes among the state governments. Already 12 Finance commissions have been constituted in USA. The last Finance Commission (12th Finance Commission) has recommended that 31.5 percent of all the central taxes to be shared with the State Governments. The  inter se distribution of central taxes among the state government is determined on the basis of a formula that takes into account various factors like population, area, per capita income, tax effort and fiscal discipline of the state governments.  The share in central taxes is a significant source of revenue for the state governments.