VISION: Journal of Indian Taxation
Year : 2017, Volume : 4, Issue : 2
First page : ( 39) Last page : ( 63)
Print ISSN : 2347–4475. Online ISSN : 2395–2571.
Article DOI : 10.17492/vision.v4i02.11778

Sigma and Beta Convergence in Revenues and Expenditure across Indian States

Raut Dirghau Keshao

Assistant Adviser, Department of Economic and Policy Research, Reserve Bank of India, Mumbai, Maharashtra, India. (Email id: dkraut@rbi.org.in

Online published on 9 May, 2018.

Abstract

Applying the idea of convergence in economics to revenues and expenditures of state governments (sub-national governments), the paper examines fiscal convergence across states in India. Using panel and cross-section regressions, the study finds evidence of convergence in revenues and expenditures. Among the fiscal indicators used in the paper, the speed of beta convergence was found to be highest in capital outlay. We contribute to the existing literature by examining the process of convergence in revenues and expenditures for pre and post fiscal rule (FRBM) period which revealed that, the convergence was more pronounced in the post-FRBM period. Evidence of the favourable impact of fiscal rules on indicators such as capital outlay suggest that states should follow fiscal rules for fiscal consolidation without compromising on the quality of expenditure.

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Keywords

Panel data models, Fiscal policy, State government revenues, State government expenditures, Convergence.

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