The Paradox of Fiscal Imbalances in India
Quaderni Working Paper DSE N° 969
29 Pages Posted: 21 Oct 2014
Date Written: October 20, 2014
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: Suggested Citation