Intergovernmental Transfer Systems in Nepal: Performance and Institutions

This working paper takes stock of the Intergovernmental Fiscal Transfers in Nepal. It provides an institutional analysis of fiscal transfers in Nepal and dissects the relationship between performance based fiscal equalisation grants and actual performance of local governments. Employing probit and OLS regressions, it finds performance-based grants negatively correlate with performance mobility and are too small to incentivise better performance. The working paper also recommends reimagining earmarked grant allocation in Nepal and revising current measures to capture performance of local governments.