Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation

34 Pages Posted: 18 Apr 2013

See all articles by Antra Bhatt

Antra Bhatt

University of Rome Tor Vergata

Pasquale Scaramozzino

University of Rome II - Faculty of Economics; University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written: April 17, 2013

Abstract

This paper examines the relationship between federal transfers and fiscal deficits in India. The system of federal transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990-2010. The paper finds a positive long-run relationship and bi-directional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality between state domestic product and transfers. These results are confirmed by multi-variate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita and the primary deficit of the states. The evidence in the paper is consistent with the system of fiscal transfers being “gap-filling.”

Keywords: federal transfers, India, public finance, panel cointegration, panel ECM

JEL Classification: H77, R23, C33

Suggested Citation

Bhatt, Antra and Scaramozzino, Pasquale, Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation (April 17, 2013). CEIS Working Paper No. 271, Available at SSRN: https://ssrn.com/abstract=2252559 or http://dx.doi.org/10.2139/ssrn.2252559

Antra Bhatt

University of Rome Tor Vergata ( email )

Via Montpellier,1
Rome, Lazio 00133
Italy

Pasquale Scaramozzino (Contact Author)

University of Rome II - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

University of London - Centre for Financial and Management Studies (CeFIMS)

Thornhaugh Street
London, WC1H 0XG
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
26
Abstract Views
356
PlumX Metrics