Central Transfer a Curse or Blessing? Evidence from the Relative Revenue Effort of Indian States

Avipsa Mohanty, Dinabandhu Sethi and Asit Ranjan Mohanty

Australian Economic Review, 2020, vol. 53, issue 2, 214-227

Abstract: This paper evaluates the revenue effort of Indian states during the 13th and 14th Finance Commission periods and estimates the impact of central transfers recommended by the Finance Commission on the relative revenue effort of states. Using panel data the study finds that Bihar, Uttar Pradesh, Madhya Pradesh, Assam and Kerala are the top five states with the greatest relative revenue effort. Further, the impact of central transfers on revenue effort was found to be negative, suggesting that greater devolution encourages laxity in the state's tax collection efficiency by providing perverse incentives.

Date: 2020
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