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Indian Journal of Federal Studies
(Vol.XII, No.2, 2011)

ISSN No. 0976-8408

Federal Fiscal Transfers: Theories and Contestations

- Pratibha Agarwal


As opposed to a system of direct involvement of the central government in local service delivery, a system of formal inter-governmental grants distorts the tax effort or expenditure decisions of the local government. The incentives built into the transfer system determine the nature and extent of such budgetary effects. While in the earlier theorization of the impact of grants “flypaper effect” commanded greater attention, the dominant concern of the second-generation theories is equity and efficiency. Recent theories examine the role of federal transfers vis-à-vis these issues using principal-agent and game theory models. The paper observes that there is plethora of methodological, empirical and conceptual issues that need to be settled while analyzing the federal fiscal relations in Indian economy.

[Page No. 60 - 74]





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