Demand for increased public expenditure due to enhanced political consciousness and implementation of investment programmes through mechanism(s) infected with diseconomies are the two important forces among several others to put increased pressure on the fiscal resources available within a state. Short-term measures undertaken by a Sate viz., dependence on federal transfers and resorting to overdraft evidently has their respective detrimental implications on fiscal health of the state. The remedial approach pervasively suggested by the contemporary fiscal strategists to tackle the ever-increasing fiscal gap moves towards attaining an appropriate degree of financial self reliance. Thus, the obvious solution of fiscal restructuring dwells on an in-depth understanding of the fiscal system of a state particularly on a temporal analysis of the indicators that throw light on the performance of a tax system in respect of two objectives: (i) siphoning off into the state exchequer the collection of revenue without endangering the incentive for private savings and investment and (ii) helping to release resources for private investment by reducing private consumption. While the indicators like the compound growth rate and marginal tax rates do not take in to account the taxable capacity, the tax ratio and the tax efforts measures generally fail to indicate the responsiveness of the tax structure to changes in state’s income over time. Thus the temporal analysis of tax responsiveness in terms of Elasticity and Buoyancy becomes imperative to have an evaluative insight into the effectiveness of a state’s tax system. The present study is an attempt in this regard by taking the States of North Eastern Region for the period 1963-64 to 2000-01. The study reveals that most of the States in the region have failed miserably in mobilizing resources to meet ever increasing public expenditures and thereby are suffering from dependency syndromes.
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Paper provided by EconWPA in its series Public Economics with number
0509011.