Types of Grants:

In most countries the local governments rely to differing degrees upon central government transfers through grants as source of revenue.  These grants are financed through central government tax revenues, like income tax, custom duties and so on, which are more buoyant than the local level taxes.  The provision of grants serve various purposes as discussed in the previous section.

The taxonomy of grants is based on certain types of criteria.  First there is the question of whether the amount received can be used freely (general grants) or must be spent for specific purpose (selective grant).  Moreover, the grants as can be seen in the chart 1 represent a fixed proportion of the expenditure (matching grant) or bear no relation to it (non-matching grant).