This study raises policy issues arising from the fact that the present tax-expenditure policies and institutional set-up at both the provincial and local government levels of the Province of the Punjab are dated and need revision. There is now an active awareness within the Punjab Province that substantial changes are necessary. The broad outlines of these required changes which have been identified in this study, as follows: i) The Provincial Government needs to recognise that the 1997 National Finance Commission (NFC) Award’s projected high level of Federal Divisible Pool Revenues are unlikely to materialise in the light of the substantial changes made in tax policies by the post 1997- Award Federal Government as well as by the depressed state of the economy. As a result the historical pattern of Federal Transfers covering more than 85 per cent of consolidated Punjab Provincial and Local Government expenditures is unlikely to be ever repeated. In fact the 1997-98 coverage of 75 per cent is likely to go down even further and this gap needs to be filled by active resource mobilisation and expenditure curtailment measures.