appear to offer less costly alternatives for the principals to induce compliance from their agents.

_Outcomes_ : Program outcomes are to be judged for clarity of mandate by the principals, durability of political consensus and for simplicity and equity of the equalization transfers programs. Equalization programs in Canada and Germany are enshrined in their constitutions. The Australian program is mandated by federal law and the Indian program is primarily concerned with equitable distribution of federal revenue sharing pool and has no explicit equalization objective.

There is a reasonable degree of political consensus on the principles of equalization in Canada, Germany and Australia. No such consensus has yet emerged in India. What distinguishes Canadian and German programs from those of Australia and India are clarity of the equalization standard and simplicity in implementing it. Needless to say both these programs have a number of shortcomings (see Shah, 2003). The Australian and Indian programs lack clarity in equalization standard.

Australia uses a comprehensive program attempting to equalize fiscal capacity as well as fiscal needs requiring highly complex calculations. Massive amounts of data are analyzed to calculate revenue disability for 18 tax bases and expenditure disabilities for 40 programs with countless relevant determinants. The procedures used are so complex that the Australian program is a black box even for a serious student. The program thrust is on absolute comparability of services across states and territories. This focus diverts states’ energies to proving that “they need more to do less” as opposed to “doing more with less”. While the overall approach to expenditure needs is sound and defensible, the pursuit of idealism by the CGC and constant refinements lead to super complexity and non-transparency. For highly correlated factors disabilities are artificially magnified through double counting and multiplication. Under such a program use of judgment on factors and weights is inevitable but such judgments invite controversy and compromise the credibility of the whole program. When all is said and done the results are often disappointing. As the program lacks an explicit equalization standard, its generosity is overwhelming for its Northern Territory , Tasmania and South Australia and the program is punitive for Victoria and New South Wales. The program, however is not equitable and grant allocations vary directly with most macro fiscal capacity indicators (see Shah, 2004, for a detailed critique of the Australian Program and suggestions for simplification). The Indian formula is less complex but uses arbitrary factors and weights. Curiously enough all recent commissions have insisted on using 1971 state population figures for calculation of grant shares. The rationale presented is that India adopted a population control policy in that year. This is not defensible as the state population has experienced major changes due to migration.

# **6. Concluding Remarks**

Comparing institutional arrangements across different countries is a daunting task. The success of these arrangements depends upon a multitude of factors. The success of 15