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

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  • Shreshtha, Ruzel
  • Chakraborty, Lekha S

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 development outcomes, is facing fiscal stress within the rule-based fiscal framework and innovating 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 the Kerala State Budgets, during the period 2011-12 to 2016-17 to analyse the significant deviation between the projections and realizations of the State finances. We found that the magnitude of forecasting errors was relatively significant in case of tax revenue. While partitioning the sources of errors in the budgetary forecasting in Kerala, we found that the random components of the error were larger than the systematic components for all the macro-fiscal variables, except for own revenue, grants 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 in Additional 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.

Suggested Citation

  • Shreshtha, Ruzel & Chakraborty, Lekha S, 2019. "Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala," MPRA Paper 93367, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:93367
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    References listed on IDEAS

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    1. Chakraborty, Lekha & Sinha, Darshy, 2018. "Has Fiscal Rule changed the Fiscal Marksmanship of Union Government?," Working Papers 18/234, National Institute of Public Finance and Policy.
    2. Mukherjee, Sacchidananda, 2019. "Exploring Low-Carbon Energy Security Path for India: Role of Asia-Pacific Energy Cooperation," Working Papers 19/259, National Institute of Public Finance and Policy.
    3. Rathin Roy, 2015. "Finance Commission of India’s Assessments: A Political Economy Contention between Expectations and Outcomes," Working Papers id:6581, eSocialSciences.
    4. D. A. L. Auld, 1970. "Fiscal Marksmanship in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 3(3), pages 507-511, August.
    5. Pratik Dutta & Mehtab Hans & Mayank Mishra & Ila Patnaik & Prasanth Regy & Shubho Roy & Sanhita Sapatnekar & Ajay Shah & Ashok Pal Singh & Somasekhar Sundaresan, 2019. "How to Modernise the Working of Courts and Tribunals in India," Working Papers id:13028, eSocialSciences.
    6. Morrison, Rodney J, 1986. "Fiscal Marksmanship in the United States: 1950-83," The Manchester School of Economic & Social Studies, University of Manchester, vol. 54(3), pages 322-333, September.
    7. Nithin K. & Roy, Rathin, 2014. "Finance Commission of India's Assessments: A Political Economy Contention between Expectations and Outcomes," Working Papers 14/141, National Institute of Public Finance and Policy.
    8. Chakraborty, Lekha S, 2019. "Indian Fiscal Federalism at the Crossroads: Some reflections," MPRA Paper 93516, University Library of Munich, Germany.
    9. Davis, J M, 1980. "Fiscal Marksmanship in the United Kingdom, 1951-78," The Manchester School of Economic & Social Studies, University of Manchester, vol. 48(2), pages 187-202, June.
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    Cited by:

    1. Chakraborty, Lekha & Chakraborty, Pinaki & Shrestha, Ruzel, 2019. "Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India," Working Papers 19/280, National Institute of Public Finance and Policy.
    2. Jena, Pratap Ranjan, 2019. "Living under Fiscal Rules: Fiscal Management Response and Resource Allocation Choices for State of Odisha," Working Papers 19/264, National Institute of Public Finance and Policy.
    3. Ghosh, Anindita & Chakraborty, Lekha, 2019. "Analysing Telangana State Finances: Elongation of Term to Maturity of Debt to Sustain Economic Growth," Working Papers 19/288, National Institute of Public Finance and Policy.
    4. Lekha Chakraborty & Pinaki Chakraborty & Ruzel Shrestha, 2020. "Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India," Economics Working Paper Archive wp_964, Levy Economics Institute.
    5. Gupta, Manish & Chakraborty, Pinaki, 2019. "State Finance Commissions: How successful have they been in Empowering Local Governments?," Working Papers 19/263, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Fiscal marksmanship; fiscal forecasting errors; fiscal rules;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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