The Paradox of Fiscal Imbalances in India

Quaderni Working Paper DSE N° 969

29 Pages Posted: 21 Oct 2014

See all articles by Motilal Mahamallik

Motilal Mahamallik

University of Mysore - Institute of Development Studies

Pareswar Sahu

Sambalpur University - P.G. Department of Economics

Sushanta Mahapatra

University of Bologna - Department of Economics

Date Written: October 20, 2014

Abstract

An attempt has been made to examine the nature and extent of fiscal imbalances in India using the secondary data over a period of thirty years from 1980-81 to 2009-10 (BE). It has been established that there is persistence and growing vertical as well as horizontal fiscal imbalances even after a series of corrective fiscal measures. Efforts to reduce these imbalances found to be ineffective due to contradictions among different measures of fiscal correction. Methodologies adopted to maintain equity contradict with methodologies used to increase efficiency. The 14th finance commission may take initiative to resolve this paradox through a ‘weight adjustment solution’ which can be helpful in reducing the imbalances. In addition to it, adequate generations of revenue through increasing tax efforts on the part of states and reform in the transfer system are essential for maintaining fiscal balances.

Keywords: Fiscal Policy, Vertical and Horizontal Fiscal Imbalances

JEL Classification: E61, E62, E63

Suggested Citation

Mahamallik, Motilal and Sahu, Pareswar and Mahapatra, Sushanta, The Paradox of Fiscal Imbalances in India (October 20, 2014). Quaderni Working Paper DSE N° 969, Available at SSRN: https://ssrn.com/abstract=2512126 or http://dx.doi.org/10.2139/ssrn.2512126

Motilal Mahamallik (Contact Author)

University of Mysore - Institute of Development Studies ( email )

Manasagangothri
Mysore
India

Pareswar Sahu

Sambalpur University - P.G. Department of Economics ( email )

Jyoti Vihar
Sambalpur, Orissa 768019
India

Sushanta Mahapatra

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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