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Central Transfer a Curse or Blessing? Evidence from the Relative Revenue Effort of Indian States
Author(s) -
Mohanty Avipsa,
Sethi Dinabandhu,
Mohanty Asit Ranjan
Publication year - 2020
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.12358
Subject(s) - revenue , commission , curse , incentive , state (computer science) , tax revenue , economics , business , public economics , finance , market economy , algorithm , sociology , anthropology , computer science
This paper evaluates the revenue effort of Indian states during the 13th and 14th Finance Commission periods and estimates the impact of central transfers recommended by the Finance Commission on the relative revenue effort of states. Using panel data the study finds that Bihar, Uttar Pradesh, Madhya Pradesh, Assam and Kerala are the top five states with the greatest relative revenue effort. Further, the impact of central transfers on revenue effort was found to be negative, suggesting that greater devolution encourages laxity in the state's tax collection efficiency by providing perverse incentives.