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Federal Transfers and Fiscal Discipline in India


  • Antra Bhatt

    (Dipartimento di Economia Diritto e Istituzioni, Università di Roma Tor Vergata, Rome, Italy
    Research and Development, Tata Institute of Social Sciences, Mumbai, Maharastra, India)

  • Pasquale Scaramozzino

    () (Dipartimento di Economia Diritto e Istituzioni, Università di Roma Tor Vergata, Rome, Italy
    Department of Financial and Management Studies, SOAS, University of London, UK)


This article examines the relationship between federal transfers and fiscal deficits in India. The current system of transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990 to 2010. The article finds a positive long-run relationship and bidirectional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality from state domestic product to transfers. These results are confirmed by multivariate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita, and state primary deficit. The evidence in the article is consistent with the system of fiscal transfers being “gap filling.â€

Suggested Citation

  • Antra Bhatt & Pasquale Scaramozzino, 2015. "Federal Transfers and Fiscal Discipline in India," Public Finance Review, , vol. 43(1), pages 53-81, January.
  • Handle: RePEc:sae:pubfin:v:43:y:2015:i:1:p:53-81

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    Cited by:

    1. Bhatt Hakhu, Antra & Piergallini, Alessandro & Scaramozzino, Pasquale, 2014. "Public Capital Expenditure and Debt Dynamics: Evidence from the European Union," MPRA Paper 62827, University Library of Munich, Germany.
    2. Yongqiu Wu & Yi Huang & Jing Zhao & Yanping Pu, 2017. "Transfer payment structure and local government fiscal efficiency: evidence from China," China Finance and Economic Review, Springer, vol. 5(1), pages 1-15, December.


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