Designing Transfers Policy with Normatively Determined Revenues and Expenditures of State Governments in India

K. R. Shanmugam () and K. Shanmugam ()
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K. R. Shanmugam: (Corresponding Author)Director and Professor, Madras School of Economics
K. Shanmugam: Chief Secretary of Government of Tamil Nadu and Senior Research Fellow of Madras School of Economics
Authors registered in the RePEc Author Service: Shanmugam K. Rangasamy

Working Papers from Madras School of Economics,Chennai,India

Abstract: This study addresses an important policy issue of designing equalisation transfers from the union government of India to the states. It empirically measures the own revenue efficiency and potential of General Category and Special Category States using the frontier approach for panel data. It also analyses the effect of transfers on states’ own revenue and its components. Results indicate a strong crowding-out effect of transfers in General Category States and a strong crowding-in effect in Special Category States. Amounts of additional transfers required to provide equal level of public services for all 29 States in four alternative scenarios range between ?1072 billion and ?15,948 billion. The range is based on alternate benchmarks of fiscal capacities and expenditure needs. We hope that these results will be useful to policymakers and other stakeholders to design appropriate fiscal transfer strategies such that all citizens can avail a standard level of public services in India.

Keywords: Fiscal equalisation; expenditure needs; fiscal capacity; Indian states (search for similar items in EconPapers)
JEL-codes: C23 H72 H73 H77 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-12
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