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IIM Indore

Economics

Canadian Tax Journal/Revue fiscale canadienne

Vertical Sharing and Horizontal Distribution of Federal-Provincial Transfers in Canada, 1983-2018

<h3>Background</h3>Acceptance of Disability-Adjusted Life Year (DALY) as a measure of health summary and progression has increased over the years, which in turn has instigated comparative analysis studies of DALY across time and geography. Thus, it is important to explore methodological underpinnings of comparative analysis.<h3>Results</h3>A crude comparison of disease burden across time or space may mislead the interpretation of the health system’s performance because the quantum and pattern of DALY can be influenced by the age structure of the society. A significant proportion of this burden is due to the Years of Life Lost (YLL) component. The paper proposes a mathematical exposition to decompose the change in YLL over time or region into burden attributed to a) population age structure, b) death rate, and c) age at death gradient.<h3>Conclusion</h3>We reasoned that the death rate and age at death burden gradient signify the real contribution of the health systems. Hence, the method of decomposition can be utilized to measure the health service progression of a region in real terms.

World University root node

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Archives of Public Health

Decomposition of years of life lost due to premature death (YLL): a method for spatial and temporal comparative assessment

Previous efforts to decompose intergovernmental transfers made by the Twelfth and Thirteenth Finance Commissions into vertical and horizontal components estimate the extent of horizontal fiscal equalisation achieved through transfers at around 90%. But other channels of central transfers and spending, mostly bypassing state budgets, also have implications for regional welfare and horizontal fiscal equalisation. A comprehensive view is preferable for all central transfers and spendings having implications for regional welfare in examining vertical sharing and horizontal fiscal equalisation in India. Some methodological concerns over the decomposition of central transfers into vertical and horizontal components are addressed.This paper is based on an extension of the data set created as a part of my doctoral thesis submitted to the Indian Institute of Management, Ahmedabad. I express sincere thanks to my thesis&nbsp;…

Economic & Political Weekly

Re-examining Vertical Sharing and Horizontal Distribution of Fiscal Resources in India

There is a large body of literature measuring interregional fiscal flows through federal fiscal policy in the European and North American contexts. However, federal countries in the developing world have not received similar attention. This article provides the first published estimates of interregional fiscal flows in India for the period 2001-2015. The estimates show that nearly 40 percent of the Indian population lives in "donor" or net contributing states, which provide fiscal resources to the rest of the country. In the presence of wide regional disparities and a small donor base, fiscal redistribution does not succeed as a tool for eliminating regional income inequalities. However, fiscal redistribution does serve an important purpose in reducing initial regional fiscal inequalities by 60 percent. Contrary to the existing literature on developed countries, in this study it is observed that taxation rather than expenditure emerges as the main channel of interregional fiscal redistribution in India. With respect to measurement, the author of the article argues for utilizing primary fiscal balances under a balanced budget approach to avoid double-counting and to control for fiscal deficit.

Canadian Tax Journal/Revue Fiscale Canadienne

Interregional Fiscal Flows and Horizontal Fiscal Equalization in India, 2001-2015

The study carries out epidemiological transition analysis of disease burden from 1995 to 2014 in India and States for selected diseases. Disability Adjusted Life Years (DALY) methodology has been adapted for disease burden estimation using Medical Certification of Cause of Death (MCCD) and Sample Registration Survey data. The study further elaborates on the essence of decomposition into age structure, death rate and age at death in order to better analyze health system progression. Results indicate wide diversity among states in bearing the burden of communicable, non-communicable and injury. Some states like Bihar, Chhattisgarh and Madhya Pradesh are facing the dual burden of diseases. Findings of the study would be useful in tailoring health care expenditures at regional level based on population health needs thus improving technical and allocative efficiency of health systems.

IARIW-ICIER Conference

Distribution of Disease Burden and Epidemiological Transition in the Indian States: 1995-2014

Constitutional design of intergovernmental transfers in India envisaged horizontal fiscal equalization as the basis of centre-state fiscal relations. However, growth of discretionary central transfers and expenditures have created possibility for redistributive politics to influence interstate distribution of central fiscal resources. Recent literature highlights role of political forces in determining interstate allocation of discretionary central transfers. However, available literature in Indian context suffers from serious data gaps due to omission of central transfers &amp; spending bypassing the state budgets. Present paper addresses this specific data gap by using panel dataset of interstate allocation of all central transfers &amp; spending relevant for regional welfare. Analysis suggests that while discretionary central transfers are driven by concerns for income inequality and poverty alleviation, bargaining power of the states through representation in ruling coalition at central level also influence disbursement of central funds. The paper also finds some evidence on role of median voter theorem in influencing interstate distribution of central transfers.

WORKING PAPER

Fiscal Federalism and Redistributive Politics in India

For large economies with substantial regional variation, it is of great importance for policymakers and economic analysis that macro-economic statistics are broken down by region. This paper reviews the regional accounts in India, discusses their role in Indian federal and state policies, and provides new estimates to cover major data gaps. Statistics on domestic product by Indian state, broken down by industry, are regularly published. But despite demands and recommendations by various commissions and policymakers, a comprehensive system of regional accounts is yet to be developed. New estimates for the period 1993–2010 are presented for saving and the macro-economic expenditure by Indian states, like final consumption, capital formation, and trade balance. They show, for example, that some of the fastest growing Indian states have increased their saving and investment rates to 50 percent of their domestic product.

Review of Income and Wealth

Regional Accounts of India: Methods, New Estimates, and Their Uses

This paper provides first-ever estimates of interregional fiscal flows in India for the
period of 2001-2015. Estimates show that nearly 40 percent of the Indian population lives in
the ‘donor’ or net contributing states, providing fiscal resources to rest of the country. In
presence of wide regional disparities and small donor base, fiscal redistribution cannot succeed
as a tool to reduce regional income inequalities. However, fiscal redistribution serves an
important purpose in reducing regional fiscal inequalities by two-third. On measurement
issues, paper contributes on regional allocation of federal fiscal deficit and interest payment on
public debt. Issues related to double counting on these components are addressed, with clearer
theoretical ground for their allocation.

Paper prepared for the 34th IARIW General Conference

Federal Fiscal Balances in India: Methods, New Estimates, and their Implications

Public sector transactions are integral part of the National Accounts in India. However, similar estimates providing consolidated government transactions at the regional level are currently not available. The paper brings out the deficiencies in the dissemination of statistics relating to consolidated economic and purpose classification of the government transactions at the regional level. The gap is essentially on part of the central government expenditures in states on different purposes cross-classified by economic categories. Other than improving regional accounts, filling these data gaps would also help in improving research on regional growth and fiscal federalism in India.

Journal of Income & Wealth (The)

Public sector transactions for regional accounts: an approach and some issues

Estimates of gross state domestic product at market prices and its implication for the finance commission

Regional imbalances in economic growth and development have always drawn attention of the policymakers in federal economies. Two important economic forces having implications for regional disparities are: i) market forces through interregional trade and factor flows; and ii) direct interventions through interregional fiscal transfers and channelling of investment to the poorer regions. Although impact of these forces on regional disparities has been debated in the literature; there is a broad consensus to reduce horizontal fiscal imbalances through intergovernmental transfers, to even enable functioning of common national market. A major handicap in conducting research work and policy formulation on regional disparities in India is the absence of regional accounts, which could provide frame of reference to analyze developments in the state economies. This data gap makes it impossible to understand some of the important aspects of the state economies such as savings, capital formation, interregional trade, and capital flows. All these factors are considered crucial in the economic growth theories. However, Indian policymakers have been making their best efforts to achieve balanced regional development without having data for the underlying regional accounts. Even the role of central government’s fiscal policy, through its multiple channels of transfers and spending in the state economies, has been rarely estimated comprehensively. Without measuring the size of central government’s taxation and expenditure in the state economies, neither understanding of horizontal fiscal equalization nor consolidated analysis of government transactions in the regional accounts is feasible. This study attempts to fill two of the important research/data gaps in the work on regional accounts and fiscal federalism in India by preparing estimates of: i) savings, investment, and interregional capital flows; and ii) consolidated fiscal accounts of the state and central government, within regional accounting framework. Estimates of regional accounts cover the period from 1993-94 to 2009-10, while consolidated fiscal accounts of the central and state governments have been prepared for 1999-00 to 2010- 11. To prepare the regional accounts at state level, we have used expenditure side approach to the economic accounting at regional level. Interregional fiscal flows by central government have been measured by analyzing interstate distribution of different components of central transfers, expenditure by central ministries, and collection of central taxes from the states. To this, state government’s budgetary transactions have been added to prepare consolidated accounts of the government at state level. Estimates of regional accounts show that changing growth trajectories of the states in the last two decades can also be explained by savings and investment patterns at the state level. Particularly, some of the poorer states have increased their saving and investment rates in the last two decades, which is reflected in their improved growth performance. Analysis of regional accounts also shows significant interstate variations in the composition of state economies, particularly for the special category states which are dominated by government expenditure and interregional trade. Analysis of interstate allocation of the central government’s transfers and spending shows that formula based transfers, non-formula based transfers, and direct central spending benefit three different categories of the states; with distributional progressivity declining from formula based transfers to direct central spending. This differing impact of the three channels of central transfers and spending raises questions about the objectives of central government’s interventions in the state subjects. Although central transfers and spending bypassing the state budgets partly cancel out the extent of horizontal fiscal equalization achieved through Finance Commission transfers, we still found evidence for substantial horizontal fiscal equalization by consolidating central and state budgets at the state level. We also found evidence of increasing interregional central transfers to the poorer states and sizable inflows of private capital to some of the poorest states. Evidence of large and consistent interstate capital flows substantiates the need to prepare estimates of GSDP with income accruing approach rather than existing income originating approach alone. This study develops a regional accounting framework which would be useful for planning and research on regional development. Regarding the structure of fiscal federalism in India, this study establishes the need and provides an approach to broaden the concept of horizontal fiscal equalization, which would be useful for managing centre-state fiscal relations.

Savings and Investment in Indian States: Implications for Growth and Public Finances

Journal of Income &amp; Wealth (The)

Issues in preparing back series of state income with base year 2004-05: Challenges for state bureaus

We consider the interaction between redistributive politics at central and local levels in a federal system, and characterize the factors influencing success in redistributive politics in both federal and unitary systems. We examine how the political characteristics of different states and groups give them better or worse outcomes in a federal system as opposed to a unitary system. We examine possibilities of multiple equilibria with divided government between the two layers. We analyze the choice between block grants and matching grants. We also examine the impact of federalism on the incentives for geographic mobility.