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Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation

Bhatt, Antra and Scaramozzino, Pasquale (2015) 'Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation.' Public Finance Review, 43 (1). pp. 53-81.

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Abstract

This article examines the relationship between federal transfers and fiscal deficits in India. The current system of transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990 to 2010. The article finds a positive long-run relationship and bidirectional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality from state domestic product to transfers. These results are confirmed by multivariate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita, and state primary deficit. The evidence in the article is consistent with the system of fiscal transfers being ‘‘gap filling.’’

Item Type: Articles
Keywords: Federal transfers, India, public finance, panel cointegration, panel ECM.
SOAS Departments & Centres: Faculty of Law and Social Sciences > School of Finance and Management
Faculty of Law and Social Sciences > School of Finance and Management > Centre for Financial and Management Studies (CeFiMS)
Institutes and Regional Centres > Centre of South Asian Studies
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HJ Public Finance
ISSN: 10911421
DOI (Digital Object Identifier): 10.1177/1091142113515049
Depositing User: Pasquale Scaramozzino
Date Deposited: 22 Dec 2014 12:27
URI: http://eprints.soas.ac.uk/id/eprint/19318

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