The focus of this paper is on inter governmental resource transfers. The question of these transfers crops up because of an asymmetry between revenues and expenditures. Since the federal government earns 90% of the revenues, while the provincial governments spend 25% of the revenues, this calls for transfers from the federal to the provincial governments under the aegis of the National Finance Commission. The allocations through the NFC have increased substantively over time. Pakistan is a federation of four provinces, unequal in area, population and levels of economic and social development. The ethnic distinction of provinces makes horizontal equity in development vital to political stability and national cohesion. The separation of East Pakistan from the federation in 1971 was rooted in a perception, right or wrong, of economic injustice. The adoption of the 1973 Constitution with unanimous1 support of all remaining provinces, by addressing many of the contentious economic issues, provided the country another opportunity to address regional economic disparities and to strengthen the federation. Unfortunately, violations of the Constitutional mandate as well as partisan interpretation of various Articles of the Constitution over the last 33 years have aggravated economic disparities between the provinces and rekindled perceptions of economic injustice among the provinces.