Local Fiscal Effort in Response to State Expenditure: Some Empirical Evidence

Shyam Nath () and Yeti Nisha Madhoo
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Shyam Nath: Amrita Vishwa Vidyapeetham University
Yeti Nisha Madhoo: Amrita Vishwa Vidyapeetham University

Chapter Chapter 8 in Vanishing Borders of Urban Local Finance, 2022, pp 245-262 from Springer

Abstract: Abstract This chapter reviews the literature on intergovernmental fiscal collusion and retaliatory behavior in raising resources. Our research question is what happens to local fiscal effort when grants are forthcoming and state expenditure is rising at the expense of local expenditure. Empirical tests conducted using data on Mumbai and Delhi municipal corporations show that grants have not stimulated local willingness to raise more resources and state expenditure has risen at the expense of local expenditure. Thus, the dampening effect of state fiscal behavior outweighs stimulation effect of grants resulting in sluggish revenue expenditure growth at the local level having implications for local autonomy and service delivery. These results however are tentative, given the limited availability of requisite data on local government finances.

Keywords: Fiscal decentralization; Leviathan hypothesis; Fiscal collusion hypothesis; Inter-governmental fiscal relations (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-19-5300-2_8

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DOI: 10.1007/978-981-19-5300-2_8

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