Which of the following statements is true regarding the sources of revenue in a federal system?

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States have no financial autonomy

States are dependent for revenue of funds on the central government.

Sources of revenue for each level of government are specified clearly to ensure its financial autonomy.

States have no financial powers or independent sources of revenue

answer is C.

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Detailed Solution

In a federal government, sources of revenue for each level of government are specified clearly to ensure its financial autonomy.
Since the federal government works horizontally, ensuring independence for each level of government is one of its basic features. The state government is not answerable to the central government and is not a subordinate of it either. Instead, it works independently with its own set of well-defined powers. Similarly, sources of revenue for each level of government are specified clearly to ensure its financial autonomy and smooth working at the horizontal level of the federal system of the government. As a result, the states have financial independence and do not have to depend on the central government for revenue or funds.

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