Equalisation Transfers Based on Spending Needs and Fiscal Capacity of State Governments in India

K. Shanmugam and K. R. Shanmugam
Additional contact information
K. Shanmugam: K. Shanmugam is a Research Scholar, Madras School of Economics, India. He is retired Chief Secretary of Government of Tamil Nadu. E-mail: shanmugamka1960@gmail.com
K. R. Shanmugam: K. R. Shanmugam (corresponding author) is Director and Professor, Madras School of Economics, India.
Authors registered in the RePEc Author Service: Shanmugam K. Rangasamy

Margin: The Journal of Applied Economic Research, 2022, vol. 16, issue 2, 139-165

Abstract: This study addresses an important policy issue pertaining to the determination of equalisation transfers to Indian states. It empirically estimates the effect of transfers on the expenditures of 29 Indian states using panel data methodology. It also determines transfers based on the spending needs and fiscal capacities of states. The results indicate a strong crowding-in effect of transfers on the public spending of states and the presence of the flypaper effect. Fiscal transfers relate positively to revenue expenditures in 13 out of 18 general category states and in 8 out of 11 special category states. The estimated amounts of equalisation transfers for all 29 states in four alternative scenarios, based on alternative benchmarks of fiscal capacities and spending needs, range between ₹555 billion and ₹16,048 billion. We believe these results will help policymakers and other stakeholders to design appropriate fiscal transfer strategies such that all citizens can avail a standard level of public services in India. JEL Codes: H77, H73, H72, C23

Keywords: Fiscal Transfers; Fiscal Equalisation; Expenditure Needs; Fiscal Capacity; Indian States; Panel Data Methods (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/09738010221074595 (text/html)

Related works:
Working Paper: Equalization Transfers Based On Spending Needs and Fiscal Capacity of State Governments in India (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:mareco:v:16:y:2022:i:2:p:139-165

DOI: 10.1177/09738010221074595

Access Statistics for this article

More articles in Margin: The Journal of Applied Economic Research from National Council of Applied Economic Research
Bibliographic data for series maintained by SAGE Publications ().