Fiscal Decentralization and Economic Growth: Evidence from Indian States

Ganaie, Aadil Ahmad; Bhat, Sajad Ahmad; Kamaiah, Bandi; Khan, Naseer Ahmed

doi:10.1177/2277978718760071

Cited by 29 publications

(22 citation statements)

References 46 publications

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“…Additionally, we find that: (a) ED has a non-linear relationship with economic growth; and (b) RD has a linear relationship with growth. This contrasts with some earlier studies that found a positive impact of ED but a negative impact of RD on economic growth (Ganaie et al, 2018). We also find that social sector expenditure and capital expenditure by the government have a positive impact on growth.…”

Section: Conclusion and Discussioncontrasting

confidence: 99%

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Decentralization and Its Impact on Growth in India

Xavier

Lolayekar

Mukhopadhyay

2021

Journal of South Asian Development

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We study the effect of revenue decentralization (RD) and expenditure decentralization (ED) on sub-national growth in India from 1981–1982 to 2015–2016 for 14 large (non-special-category) states. Our study provides evidence that both RD and ED play a defining role in India’s sub-national growth in this three-and-a-half-decade period. We use a panel data model with fixed effects (FE) and Driscoll and Kraay standard errors that control for heteroscedasticity, autocorrelation and cross-sectional dependence. To test for causality between growth and decentralization, we use the Granger non-causality test. The regression analysis is supplemented with the distribution dynamics approach. We find that: (a) While decentralization Granger-caused economic growth, the reverse causality effect of growth on decentralization was not significant; (b) Economic growth increased significantly after liberalization; (c) Decentralization, capital expenditure and social expenditure had significant positive impacts on economic growth; and (d) States that had high levels of decentralization also had high levels of per capita income, while states that had low decentralization also exhibited low per capita income.

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Section: Conclusion and Discussioncontrasting

confidence: 99%

“…Further, sustainable economic growth requires social sustainability, and social expenditures could help achieve that (Kaur et al, 2013). Ganaie et al (2018) found a positive impact of ED but a negative impact of revenue decentralization (RD) on economic growth.…”

Section: The Indian Contextmentioning

confidence: 99%

Decentralization and Its Impact on Growth in India

Xavier

Lolayekar

Mukhopadhyay

2021

Journal of South Asian Development

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“…The results indicated that tax decentralization was found to be favorable for growth if subnational taxes contributed generally from self-governing revenues like property taxes. Ganaie et al (2018) attempted to evaluate relationship between fiscal decentralization and regional growth for the period of 1981-2014 employing panel data set in India. Differentiated Ordinary Least Squares had been used to assess long-run coefficients.…”

Section: Literature Reviewmentioning

confidence: 99%

Decentralized Tax Revenue, Institutional Complementarity and Economic Growth: A Time Series Analysis of Pakistan

Shahid

Kalim²

2020

IJEFI

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Fiscal decentralization is one of the major policy variables to attain economic efficiency. The present study examines the impact of decentralized taxes on the economic growth of Pakistan from 1976 to 2018. For examining the stationarity of variables, Kwiatkowski-Phillips-Schmidt-Shin (KPSS) and Ng-Perron unit root Tests are used. Autoregressive Distributed Lag Approach (ARDL) is used for co-integration among the variables of the model. The results suggest that decentralized tax revenue i.e., income tax decentralization and sales tax revenue with political institutions have growth promoting impact on the economy of Pakistan. With strong institutions, provincial governments can give better results while transferring responsibility of collecting income tax from federal to provincial level.

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“…In other words, at local level, individuals can migrate around and cross jurisdictions to find places where public service & investment are best matched with their preferences. Ganaie, Bhat, Kamaiah, &Khan (2018) explain that any attempt of revenue maximization at local level could result in a migration of citizens and firms to other jurisdictions with lower tax rate. Second, at local level, citizens have better and closer relation with local policymakers, hence, have higher power to influence an informed decision and policy relating to their needs and benefits.…”

Section: Fiscal Decentralization and Economic Growthmentioning

confidence: 99%

“…All variables were constructed on the basis of revenue and expenditure data of the regional and central government. The selection of the fiscal indicators was based on Fiscal Decentralization Methodological approach of the International Monetary Fund (IMF, 2018), the studies from Ganaie et al (2018); Escolano et al (2012); Eyraud and Lusinyan (2011); Dziobek, Gutierrez Mangas and Kufa (2011); and Akai and Sakata (2002). In addition, we used the gross fixed capital of manufacturing, construction, and real estate activities as the proxy for capital stock of each region.…”

Section: Datamentioning

confidence: 99%

Fiscal Decentralization and Economic Growth in Thailand: A Cross-Region Analysis

Nantharath¹,

Laochankham²,

Kamnuasilpa³

et al. 2019

IJFR

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Prior to the 1997 decentralization, over 90% of national revenue in Thailand were held at the central government and less than 10% of public expenditure were allocated to local governments across country. Lack of adequate revenue and access to sufficient expenditure budget has caused disparity and ineffectiveness of public services and economic development at the local level. This study examines the effects of the fiscal decentralization on the economic growth in Thailand from 2004 to 2017. The research methodology uses a cross panel data analysis across five provincial regions and considers revenue decentralization, expenditure decentralization, transfer dependency, and vertical fiscal imbalance as influential factors of growth. By applying Panel Fully Modified Least Squares (FMOLS) and Panel Dynamic Least Squares (DOLS) regression approaches, the study finds empirical evidence of positive effects of revenue decentralization, transfer dependency, and vertical fiscal imbalance on regional economic growth across five regions. However, this study also finds that expenditure decentralization has a negative impact on regional economic growth, but level of significance is weak. These findings suggest that the rapid increase in metropolis government expenditure budget following the years of political transition in 2006 and 2014 has caused stagnation in public investment at local level across country, thereby resulted in a lagged behind industrial output and gross provincial product. Lack of budget expenditures also weakens demand and stagnates growth in manufacturing, construction, and real estate activities, thereby rendering fiscal imbalances and development gaps in Thai economy.

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Fiscal Decentralization and Economic Growth: Evidence from Indian States

Cited by 29 publications

References 46 publications

Decentralization and Its Impact on Growth in India

Decentralization and Its Impact on Growth in India

Decentralized Tax Revenue, Institutional Complementarity and Economic Growth: A Time Series Analysis of Pakistan

Fiscal Decentralization and Economic Growth in Thailand: A Cross-Region Analysis

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