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The Crowding in (out) Effect of Intergovernmental Transfers on Local Government Revenue Generation: Evidence from Pakistan

Author

Listed:
  • Tahir Yousaf

    (Zhejiang University)

  • Qurat ul Ain

    (Zhejiang University and COMSATS University Islamabad)

  • Yasmeen Akhtar

    (University of Sargodha and COMSATS Universit)

  • Wasi Ul Hassan Shah

    (Zhejiang Shuren University)

Abstract

Literature on the fiscal incentives highlight the importance of how the design of intergovernmental transfer system has momentous implication on the local government’s behavior within devolved systems. The pragmatic results on the relationship between IGT and the incentive creation for the local government revenue generation are indecisive and differs across countries. Using a unique data set covering public finance and various socio economic data over the period 1990 to 2015 in Pakistan, thispaper contribute to fiscal federalism literature by evaluating the fiscal incentives of unconditional (general purpose) formula defined and conditional (specific purpose) ad hoc based transfers. After endogenity adjustments, our empirical results shows that unconditional formula based intergovernmental transfers/grants improve the mobilization of local government revenues while the conditional, ad hoc based transfers, deteriorate the mobilization of local revenue. However, in Pakistan large part of transfers are unconditional so the results suggest that transfers from the federal government complement local own source revenues generation by encouraging local governments in Pakistan to collect more revenues.

Suggested Citation

  • Tahir Yousaf & Qurat ul Ain & Yasmeen Akhtar & Wasi Ul Hassan Shah, 2022. "The Crowding in (out) Effect of Intergovernmental Transfers on Local Government Revenue Generation: Evidence from Pakistan," Hacienda Pública Española / Review of Public Economics, IEF, vol. 242(3), pages 3-28, September.
    • Handle: RePEc:hpe:journl:y:2022:v:242:i:3:p:3-28
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal capacity; Inter-governmental transfers; Local public finance; Devolution; Taxation.;
    All these keywords.

    JEL classification:

    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H79 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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