Fiscal imbalance
Fiscal imbalance is a mismatch in the revenue powers and expenditure responsibilities of a government. In the literature on fiscal federalism, two types of fiscal imbalances are measured: Vertical Fiscal Imbalance and Horizontal Fiscal Imbalance. When the fiscal imbalance is measured between the two levels of government (Center and States or Provinces) it is called Vertical Fiscal Imbalance. When the fiscal imbalance is measured between the governments at the same level it is called Horizontal Fiscal imbalance. This imbalance is also known as regional disparity. While Horizontal Fiscal Imbalance requires equalization transfers, Vertical Fiscal Imbalance is a structural issue and thus needs to be corrected by reassignment of revenue and expenditure responsibilities between the two senior order of the governments. Horizontal fiscal imbalances as differences in net fiscal benefits 
A horizontal fiscal imbalance (HFI) emerges when sub-national governments have different abilities to raise funds from their tax bases and to provide services. This creates differences in ‘net fiscal benefits’, which are a combination of levels of taxation and public services. It is these NFBs which are the main cause of horizontal fiscal disparities that in turn generate the need for equalization grants. Prominent among the objectives commonly attributed to intergovernmental fiscal transfers is ‘equalization’ of fiscal capacities or resolution of Horizontal Fiscal Imbalances. Thus, the transfer system can promote efficiency in the public sector and can level the field for intergovernmental competition. The discussion of horizontal fiscal imbalance and equalisation was of particular importance in the drafting of the new Iraqi constitution. It was a sticking point for the drafting process—with the oil rich regions seeking to minimise the reallocation of revenue while other regions sought to maximise equalisation payments. Vertical fiscal imbalance as a particular type of fiscal asymmetry 
Within the realm of fiscal federalism literature, there are diverse interpretations of the term Vertical Fiscal Imbalance (VFI). Sharma's research in 2012, however, presented a clarifying perspective by suggesting that VFI should refer to a specific kind of revenue-expenditure asymmetry: an "inappropriate" assignment of revenue-raising powers and spending responsibilities. To bring clarity to this perspective, Sharma introduces the term Vertical Fiscal Asymmetry'' (VFA)' which is defined as a hallmark of  multi-level fiscal systems in which the central government has access to more revenues as compared to the subnational governments (SNGs), while the SNGs are assigned more expenditure responsibilities as compared to the central government. Whether to label VFA as an Imbalance (VFI), a Gap (VFG), or merely a difference in revenues and expenditures between the two levels (VFD) depends on the politics of fiscal federalism specific to a country at a particular point in time. Navigating the literature, he posits that there can be three types of VFAs:

 Types of Vertical Fiscal Asymmetry 

Chanchal Kumar Sharma (2012) argues that there can be three types of VFAs:
1. Fiscal asymmetry with fiscal imbalance: Vertical Fiscal Imbalance (VFI). This means inappropriate allocation of revenue powers and spending responsibilities. This state can be remedied by reassignment of revenue raising powers. 2. Fiscal asymmetry without fiscal imbalance but with a fiscal gap: Vertical Fiscal Gap (VFG). This means a desirable revenue-expenditure asymmetry but with a fiscal gap to be closed. This state can be remedied by re-calibration of federal transfers. 3. Fiscal asymmetry without fiscal imbalance and without fiscal gap: Vertical Fiscal Difference (VFD). This means a desirable revenue-expenditure asymmetry without a fiscal gap ( i.e. gap is closed). This is a state of fiscal asymmetry where there is "no imbalance and no gap" and thus needs no remedial measure. Overall, when expenditure responsibilities are taken as a given, VFA can be addressed in one of two ways: if perceived as VFI, through a reallocation of revenue powers (excluding borrowing powers); if perceived as VFG, through a system of intergovernmental transfers (excluding loans). Further extending this conceptual analytic framework presented by Chanchal Kumar Sharma (2012) which according to Bev Dahlby and Jonathan Rodden provides the most extensive review on the vertical fiscal gap and vertical fiscal imbalance concepts, the authors develop a “political economy model of the VFI and VFG in a federation (see Dahbly and Rodden 2013). Many public policy experts now follow Sharma's conceptualization of "vertical fiscal asymmetry" due to its relative neutrality, and VFA's implicit support for decentralization. Others prefer Sharma's notion of "vertical fiscal asymmetry" over  its alternative "vertical fiscal imbalance" because the latter subtly negates fiscal decentralization and intergovernmental transfers. Economists prefer this because Sharma's concept of “vertical fiscal asymmetry” can possibly explain the extent to which a given VFA manifests as VFI or VFG. Others assert that the concept of VFA, as articulated by Sharma (2012) is a more nuanced concept than the conventional understanding of vertical fiscal imbalance because it highlights the unfeasibility of a balance or symmetry purporting to eliminate any kind of vertical fiscal asymmetry. Legal scholars argue that Chanchal Kumar Sharma's (2012) conceptualisation "leverages both James Buchanan’s emphasis on vertical tax separation and Richard Musgrave’s emphasis on centralized  transfers to provide an integrated intergovernmental financing model for devolved states. Under this approach, the mere existence of a vertical fiscal asymmetry (VFA) in an intergovernmental fiscal system’s design is not in any way indicative of the nature or scope of subnational revenue autonomy." See also
 Fiscal federalism
 Equalization payments
 Cyclical asymmetryNations:'''
 Fiscal imbalance in Australia
 Fiscal imbalance in Canada
 Fiscal imbalance in Nigeria

Further reading 
 Bird, R. M. (2012). Subnational taxation in large emerging countries: BRIC plus one, International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1201, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University. Sharma, C. K. (2011). Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations. Public Administration, 90(1), 99–128. https://doi.org/10.1111/j.1467-9299.2011.01947.x

References 

Fiscal federalism
Fiscal policy
Federalism