Fiscal Federalism in India: A Case for Reassigning of Tax Powers

R. Srinivasan () and S. Raja Sethu Durai
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R. Srinivasan: Full-Time Member, State Planning Commission, Government of Tamil Nadu, Chennai - 600005
S. Raja Sethu Durai: Professor, School of Economics, University of Hyderabad, Hyderabad - 500046

Working Papers from Madras School of Economics,Chennai,India

Abstract: In an ideal federation, each level of government should have its own revenue resources to sufficiently finance its own expenditures. In most of the federal countries, due to overlapping revenue and expenditure assignments warranted by their constitution, the fiscal balance is elusive. Vertical Fiscal Imbalance (VFI) arises when the own revenue potential of regional governments is inadequate to meet their own expenditure. As noted in the literature, VFI adversely affects the fiscal performance of the regional government. This study examines the VFI for India from 2005 to 2021 and provides evidence that it is raising over the period, and a feasible solution rests in the reassignment of commodity taxation powers to the states.

Keywords: Fiscal Federalism; Vertical Fiscal Imbalance; Tax Reassignment (search for similar items in EconPapers)
JEL-codes: H10 H77 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2022-10
New Economics Papers: this item is included in nep-pbe and nep-ure
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