Gerald Holtham is a visiting professor at the Cardiff Business School
An economist will lead an inquiry into how the Welsh Assembly Government receives money from the UK Treasury.
Aberdare-born Gerald Holtham will chair a commission to consider the way Wales is funded through the Barnett formula.
Ministers hope the expert panel can play a crucial role in persuading the treasury that Wales should receive a bigger share of UK public spending.
Opposition parties welcomed the appointment, but said the commission should have been established earlier.
Mr Holtham, former chief economist of investment bank Lehman Brothers, said he was looking forward to starting his work in September.
"Reviewing the current funding formula is an exciting and challenging task but very worthwhile," he said.
The commission will also consider whether the assembly government should be able to borrow money for investment, as Northern Ireland can, and have tax-varying powers, like Scotland.
Mr Holtham already sits on a panel advising Welsh ministers on economic research.
His appointment to the commission was described as a major coup for Wales by First Minister Rhodri Morgan.
"There are few people as qualified to lead this review as Gerald Holtham, who is one of the UK's leading financial experts and a passionate Welshman," he said.
Establishing the commission was a key issue in talks between Labour and Plaid Cymru to form their coalition administration, which then drew up proposals they called One Wales.
Deputy First Minister Ieuan Wyn Jones said: "In the One Wales programme of government both Labour and Plaid Cymru agree that the Welsh Assembly Government should receive 'a fair allocation of funding so that people across the nation can see enduring differences and real outcomes'.
"This commission is an important step forward in reaching our aims..."
The panel is expected to prepare an interim report on the funding formula by the summer of 2009, which can then be debated by assembly members, before continuing its work.
The final report is anticipated around the beginning of 2010.
The review is expected to run in parallel with the Calman Commission, which is investigating Scottish devolution.
Opposition politicians welcomed Mr Holtham's appointment but criticised the fact that it had taken a year to begin assembling the panel.
Welsh Conservative leader Nick Bourne said: "It speaks volumes for the performance of the assembly government that a year after Labour and Plaid Cymru joined forces they are only now beginning the process of delivering a key part of their coalition agreement."
Welsh Liberal Democrat leader Mike German said: "It is vital that there are no more halts in the process, and that the Holtham Commission can complete its work according to the timetable set out today."