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Fiscal transfer in Australia: Review and relevance to India

Author

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  • Rangarajan, C.

    (National Institute of Public Finance and Policy)

  • Srivastava, D.K.

    (National Institute of Public Finance and Policy)

Abstract

This paper examines the working of Australia's fiscal transfer system in the context of its long term evolution, paying particular attention to salient changes that have occurred since the introduction of a comprehensive Goods and Services Tax (GST). The GST has served to increase the vertical imbalance in the system, which was high even prior to this change, by placing more revenue resources with the commonwealth government in Australia. In spite of a high degree of expenditure centralisation, considerable emphasis is placed in Australia for achieving horizontal fiscal equalisation through an elaborate mechanism of equalisation transfers, which looks into both revenue and expenditure sides of the state budgets and calculates revenue and expenditure `disabilities' that account for departures from a pure equal per capita distribution of the shareable amounts. This paper looks at the equity and efficiency implications of the Australian equalisation transfers and considers its relevance for the Indian system, which has many comparable features. Apart from the need for making equalising features of the Indian transfer system more transparent, there is need for emphasising some cost disabilities, particularly those that are structural and exogenous in nature.

Suggested Citation

  • Rangarajan, C. & Srivastava, D.K., 2004. "Fiscal transfer in Australia: Review and relevance to India," Working Papers 04/20, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:04/20
    Note: Working Paper 20, 2004
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    File URL: http://www.nipfp.org.in/working_paper/wp04_nipfp_020.pdf
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    References listed on IDEAS

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    2. James M. Buchanan & Richard E. Wagner, 1970. "An Efficiency Basis for Federal Fiscal Equalization," NBER Chapters, in: The Analysis of Public Output, pages 139-162, National Bureau of Economic Research, Inc.
    3. Peter B. Dixon & Mark R. Picton & Maureen T. Rimmer, 2002. "Efficiency Effects of Inter–Government Financial Transfers in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 304-315, September.
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    Cited by:

    1. Sharma, Chanchal Kumar, 2021. "The political economy of India's transition to Goods and Services Tax," GIGA Working Papers 325, GIGA German Institute of Global and Area Studies.
    2. M. Govinda Rao & Nirvikar Singh, 2007. "The Political Economy of India's Fiscal Federal System and its Reform," Publius: The Journal of Federalism, CSF Associates Inc., vol. 37(1), pages 26-44, Winter.
    3. K. Shanmugam & K. R. Shanmugam, 2022. "Equalisation Transfers Based on Spending Needs and Fiscal Capacity of State Governments in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 16(2), pages 139-165, May.
    4. Richa Saraf & D.K.Srivastava, 2009. "Determining General and Specific Purpose Transfers : An Integrated Approach," Microeconomics Working Papers 22943, East Asian Bureau of Economic Research.
    5. Capella-Ramos, João & Checherita-Westphal, Cristina & Leiner-Killinger, Nadine, 2020. "Fiscal transfers and economic convergence," Occasional Paper Series 252, European Central Bank.
    6. K. R. Shanmugam & K. Shanmugam, 2022. "Designing Transfers Policy with Normatively Determined Revenues and Expenditures of State Governments in India," Working Papers 2022-237, Madras School of Economics,Chennai,India.
    7. Jyotsna Rosario & K. R. Shanmugam, 2023. "Impact of transfers on elementary education expenditure and measuring equalisation transfers to Indian States," Indian Economic Review, Springer, vol. 58(1), pages 141-168, June.

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    Keywords

    Fiscal transfer ; Australia;

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