Fiscal Decentralization and Economic Growth: Evidence from Indian States

Aadil Ahmad Ganaie, Sajad Ahmad Bhat, Bandi Kamaiah and N. A. Khan

South Asian Journal of Macroeconomics and Public Finance, 2018, vol. 7, issue 1, 83-108

Abstract: This study examines the relationship between fiscal decentralization and economic growth in the case of India using panel data for 14 non-specialized states for the period 1981–2014. The results revealed from panel cointegration, and dynamic ordinary least squares (DOLS) framework indicate that spending decentralization has a positive and significant impact on the state domestic product. On the other hand, revenue decentralization has a negative and significant effect on state domestic product. The overall measure of fiscal decentralization is found positively associated with the state income. This study is consistent with the divergence hypothesis in opposite to convergence hypothesis of Oates (1972). JEL: E62, H71, H72

Keywords: Fiscal decentralization; economic growth; DOLS; India (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:7:y:2018:i:1:p:83-108

DOI: 10.1177/2277978718760071

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