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Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala

Ruzel Shrestha () and Lekha cHAKRABORTY
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Ruzel Shrestha: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Our paper analyses the subnational public finance practices in one of the States in India -Kerala- and estimate the fiscal marksmanship. Fiscal marksmanship is the analysis of fiscal forecasting errors. Kerala, though well known for its achievements in human de-velopment outcomes, is facing fiscal stress within the rule-based fiscal framework and in-novating policy tools to achieve a revenue-led fiscal consolidation. We have examined the Budget Estimates, Revised Estimates and Actuals for the macro-fiscal variables from Kerala State Budgets, for the period from 2011-12 to 2016-17 to analyse deviations between the projections and actual realizations. We found that the magnitude of forecasting errors was significant in case of tax revenue. While partitioning the sources of errors in the budg-etary forecasting in Kerala, we observed that the random components of the error were larger than the systematic components for all the macro-fiscal variables, except for grants, own revenue and capital expenditure. This has three macro policy implications. One, the volatility in intergovernmental fiscal transfers can affect the stability of finances at subnational level. Two, the State needs to identify innovative policy tools for Addi-tional Resource Mobilisation (ARM) to maintain the human development achievements. Three, within the rule-based fiscal framework, State has to innovate financing strategies for strengthening growth-inducing capital infrastructure formation.

Keywords: Fiscal marksmanship; fiscal forecasting errors; fiscal rules (search for similar items in EconPapers)
JEL-codes: C32 C53 E62 H50 H60 (search for similar items in EconPapers)
Pages: 16
Date: 2019-04
New Economics Papers: this item is included in nep-mac
Note: Working Paper 261, 2019
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