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Measuring Horizontal Fiscal Imbalance Amongst Indian States: A Club Convergence Approach

In: India's Public Finance and Policy Challenges in the 2020s

Author

Listed:
  • Kovuri Akash Yadav

    (Reserve Bank of India)

  • Anoop K. Suresh

    (Reserve Bank of India)

  • Samir Ranjan Behera

    (Reserve Bank of India)

  • Ramesh Golait

    (Reserve Bank of India)

Abstract

The study empirically investigates the hypothesis of convergence in states’ per capita own tax revenue using the club convergence methodology put forth by Phillips and Sul in 2007. The results reveal that the 16 select Indian states converged into two clubs over the period from 2001–02 to 2021–22. Further, by applying the panel binary probit model, the study also found that initial economic and social conditions such as share of agriculture in GDP, per capita income and literacy rate play a critical role in determining the positioning of Indian states in their respective clubs.

Suggested Citation

  • Kovuri Akash Yadav & Anoop K. Suresh & Samir Ranjan Behera & Ramesh Golait, 2025. "Measuring Horizontal Fiscal Imbalance Amongst Indian States: A Club Convergence Approach," India Studies in Business and Economics, in: K. R. Shanmugam (ed.), India's Public Finance and Policy Challenges in the 2020s, pages 351-369, Springer.
    • Handle: RePEc:spr:isbchp:978-981-96-2860-5_19
    DOI: 10.1007/978-981-96-2860-5_19
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    More about this item

    Keywords

    Club convergence; Horizontal fiscal imbalances; Phillips and sul methodology; States’ own tax revenue;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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