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Federal Transfers and the Tax efforts of the States in India


  • K., Jothi Sivagnanam
  • M., Naganathan


The paper has examined the the impact of federal fiscal transfers on the budget of the state (sub-central) governments in India. The relationship between the federal fiscal transfers and the tax efforts of the 14 major Indian states have been anlysed for fifteen years (from 1970-71 to 1984-85)through a panel dadat set. Fixed efeect model and its variants have been employed. The study found that the federal transfers have dampaned the tax efforts of states in India. Hence, a hiher weightaege for the 'tax effort criterion' has been suggested in the vertical devolution formula of the Indian Finance Commission to ensure efficiency.

Suggested Citation

  • K., Jothi Sivagnanam & M., Naganathan, 1999. "Federal Transfers and the Tax efforts of the States in India," MPRA Paper 3208, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:3208

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    References listed on IDEAS

    1. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
    2. Richard A. Musgrave, 1961. "Approaches to a Fiscal Theory of Political Federalism," NBER Chapters,in: Public Finances: Needs, Sources, and Utilization, pages 97-134 National Bureau of Economic Research, Inc.
    3. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
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    Cited by:

    1. World Bank, 2004. "Stabilization and Fiscal Empowerment : The Twin Challenges Facing India's States, Volume 2. Detailed Report," World Bank Other Operational Studies 16775, The World Bank.
    2. Garg, Sandya & Ashima Goyal & Rupayan Pal, 2014. "Why tax effort falls short of capacity in Indian states: A Stochastic frontier approach," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-032, Indira Gandhi Institute of Development Research, Mumbai, India.

    More about this item


    Federal Transfers; Tax Efforts; Fiscal Federalism in India; Efficiency; Vertical fiscal balance;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations


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