Fiscal Federalism in India: Impact of Union Transfers on State Finances

Fiscal federalism deals with financial arrangements and their working in a federal polity. In India, federalism is not only a unifying force, but also a levelling up force, because considerable economic inequalities exist among different states of India. This book provides broad contours - including historical evolution - of fiscal relations between the central and state governments in India. The book explains operational aspects of fiscal federalism in India. More importantly, it empirically examines the effects of federal transfers on tax efforts of 14 major Indian states. The analysis has been done in the context of the use of tax efforts as a criterion for inter-se distribution of the states' share of central revenues by various finance commissions. The book provides an in-depth understanding of the two vital concepts of tax effort and tax capacity and the alternative quantitative techniques that can be employed to estimate them.