Opportunities and Challenges in Implementing Fiscal Federalism: A Case Study of Nepal's Local Governance

Abstract

Federalism enables power-sharing between central and regional administrations, with fiscal federalism focusing on resource allocation to improve governance. Nepal’s 2015 Constitution established a federal system emphasizing decentralization and participatory governance. Despite advancements like Performance-Based Grant Systems, challenges in resource allocation, infrastructure, and coordination persist. This study explored fiscal federalism’s challenges and opportunities to enhance governance and equitable development in Nepal. Using a descriptive cross-sectional design, data were collected from 384 local government officials involved in fiscal policy and management in Nepal. Data analysis, performed using SPSS version 20. The results highlight significant challenges, including insufficient funding (89.3%), political interference (89.6%), and lack of clear guidelines (85.9%). Opportunities identified include improved local economic growth (mean = 4.74), public service delivery (mean = 4.20), and accountability (mean = 4.17). However, the implementation of fiscal federalism is hindered by issues such as political instability (mean = 4.10) and resource allocation challenges (mean = 3.68). Despite these obstacles, respondents largely agree that fiscal federalism has contributed positively to local governance, with 94.3% agreeing that it has improved governance and 96% noting increased public participation. The study concludes that while fiscal federalism has shown promise in enhancing local autonomy and service delivery, addressing funding shortages, capacity deficits, and coordination challenges is crucial for maximizing its potential to foster equitable development and improve the quality of life in Nepal.