The Decentralization Dilemma in India

Catriona Purfield

No 2004/032, IMF Working Papers from International Monetary Fund

Abstract: Already in precarious shape, the financial health of India’s states took a turn for the worse in the late 1990s when state deficits and debt rose sharply. While India is among the world’s most decentralized economies, greater decentralization is not the root cause of this situation. Panel estimation techniques find evidence that the trend rise in deficits reflects problems of transfer dependence and moral hazard that undermine states’ incentives to control deficits.

Keywords: WP; government; government expenditure; country; deficit; Fiscal policy; intergovernmental fiscal relations; India; panel econometrics; State borrowing; State expenditure; borrowing framework; State population; state finances; bailout expectation; cross-state divergence; State transfer; State structure; levels of government; World Bank states database; State finance; General government spending; Government debt management; Budget planning and preparation; Central government spending; Africa; Europe (search for similar items in EconPapers)
Pages: 31
Date: 2004-02-01
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Citations: View citations in EconPapers (11)

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