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Likening fiscal federalism to a game between the Union and the States, and among the States themselves, Indian Fiscal Federalism lays bare the complex rules of play. It examines the pivotal role of Finance Commissions and assesses momentous events since 2014, such as the replacement of the Planning Commission by NITI Aayog, the emergence of the GST Council, and the controversies surrounding the Fifteenth Finance Commission. States, and among the States themselves, Indian Fiscal Federalism lays bare the complex rules of play. It examines the pivotal role of Finance Commissions and assesses momentous events since 2014, such as the replacement of the Planning Commission by NITI Aayog, the emergence of the GST Council, and the controversies surrounding the Fifteenth Finance Commission. A contemporary, timely, and comprehensive analysis of fiscal federalism in India, this practitioners’ perspective is a must-read for all those interested in the subject.
This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.
By discussing the available theoretical and empirical literature, this paper argues that budget procedures and budget institutions do influence budget outcomes. Budget institutions include both procedural rules and balanced budget laws. We critically assess theoretical contributions in this area and suggest several open and unresolved issue. We also examine the empirical evidence drawn from studies on samples of OECD countries, Latin American countries and the United States. We conclude with a discussion of the normative implications of this literature and with some concrete proposals.
This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last 20 years rather than before? We begin by discussing the “tax smoothing” model and conclude that this approach alone cannot provide complete answers to these questions. We will then proceed to a discussion of political economy models, which we organize in six groups: (i) models based upon opportunistic policymakers and naive voters with “fiscal illusion;” (ii) models of intergenerational redistributions; (iii) models of debt as a strategic variable, linking the current government with the next one; (iv) models of coalition governments; (v) models of geographically dispersed interests; and (vi) models emphasizing the effects of budgetary institutions. We conclude by briefly discussing policy implications.
Recently there has been a surge in international empirical evidence that national policymakers allocate resources across regions based on political considerations, in addition to any normative considerations of equity and efficiency. In order to mitigate these political compulsions, several federations around the world have attempted to create independent constitutional bodies that are responsible for determining federal transfers to subnational jurisdictions. The author tests whether constitutional rules indeed make a difference in curbing political influence by contrasting the impact of political variables on two types of intergovernmental transfers to states in the Indian federation over a period of time, 1972-95. The pattern of evidence shows that transfers, whose regional distribution is determined by political agents, usually provide greater resources to state governments that are politically affiliated with the national ruling party and are important in maximizing the party's representation in the national legislature. But the political effect on statutory transfers, determined by an independent agency with constitutional authority, is strikingly contrary, with greater resources going to unaffiliated state governments. The author argues that this contrasting evidence indicates that constitutional rules indeed restrict the extent to which partisan politics can affect resources available to subnational governments.
A revealing look at austerity measures that succeed—and those that don't Fiscal austerity is hugely controversial. Opponents argue that it can trigger downward growth spirals and become self-defeating. Supporters argue that budget deficits have to be tackled aggressively at all times and at all costs. Bringing needed clarity to one of today's most challenging economic issues, three leading policy experts cut through the political noise to demonstrate that there is not one type of austerity but many. Austerity assesses the relative effectiveness of tax increases and spending cuts at reducing debt, shows that austerity is not necessarily the kiss of death for political careers as is often believed, and charts a sensible approach based on data analysis rather than ideology.
This book discusses various dimensions of Indian fiscal federalism, focusing on the current fiscal imbalances – both vertical and horizontal – and their correction. Throwing light on different angles of this subject, it presents well-researched papers, which are divided into three sections. The first section, ‘Fiscal federalism and resolving the fiscal imbalances’, includes five chapters that discuss this theme and also explain the various strategies to remove the existing imbalances in India. ‘Fiscal decentralization for high growth’ which is the second section, explains how decentralisation leads to high economic growth and showcases empirical evidence from a few Indian states that are flourishing due to this policy. The third section, ‘Emerging issues’ offers six chapters describing several existing key concerns in fiscal federalism that have a major impact on achieving India’s development goals. Including contributions from leading academics in this field, the book will be of great interest to research scholars and policy makers alike. “Besides addressing the core issue of fiscal imbalances and ways to correct them, the [chapters] touch on several issues confronting the Indian fiscal system at the centre , state and local levels. The [chapters] are well researched and well argued. The book is a valuable addition to the literature on Fiscal Federalism.” – Dr. C. Rangarajan, Ex-Governor of Reserve Bank of India; Chairman, Madras School of Economics, Chennai, India.
High public debt often produces the drama of default and restructuring. But debt is also reduced through financial repression, a tax on bondholders and savers via negative or belowmarket real interest rates. After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion. Financial repression is most successful in liquidating debt when accompanied by inflation. For the advanced economies, real interest rates were negative 1⁄2 of the time during 1945–1980. Average annual interest expense savings for a 12—country sample range from about 1 to 5 percent of GDP for the full 1945–1980 period. We suggest that, once again, financial repression may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies.