Impact of restricted and unrestricted fiscal grants on tax efforts of rural local governments in India
Date
2012-12
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Publisher
National Council of Applied Economic Research (NCAER), New Delhi, IN
Abstract
This paper examined the impact of restricted and unrestricted fiscal grants on tax efforts of Rural Local
Governments in India using ARIS/REDS panel data. We estimated the system as a whole via three
stage least squares, where the first stage equations are the ones predicting the grants in order to
deal with the simultaneities of grants received and taxation. The results have shown that a wage
impacts on taxation exists, but is very small and, the productivity impact of grants on taxes is
either zero or negligible. This means that incentives effects associated with the specifics of the
intergovernmental fiscal system in the states is the main determinant of village taxation. We find
that a bolder approach to shift about a third of the tied grants to block grants could lead own
taxation to rise almost four fold. In the papers which analyze the services of education, health
care and water supply we find the positive impacts of the village expenditures on these three
services on choices, reduced private expenditures and outcomes.
Description
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Working Paper
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Keywords
DEVOLUTION, INCENTIVE EFFECTS, RESTRICTED AND UNRESTRICTED GRANTS, PANCHAYATS AND LOCAL GOVERNMENT, FISCAL POLICY, DECENTRALIZATION, INCENTIVES, LOCAL GOVERNMENT, PUBLIC EXPENDITURE, RURAL AREAS, INDIA