Does delegation of fiscal policy to an independent agency make a difference? Evidence from intergovernmental transfers in India |
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| Institution: | 1. University of Hull, Business School, Cottingham Road, Hull HU6 7RX, UK;2. Tecnológico de Monterrey, EGADE Business School, Mexico;3. University of Bath, Department of Economics, Claverton Down, Bath BA2 7AY, UK;1. Department of Economics, Lancaster University, Lancaster LA1 4YW, UK;2. Department of Economics, University of Warwick, Coventry CV4 7AL, UK;3. CAGE, University of Warwick, Coventry CV4 7AL, UK;4. Centre for Economic Policy Research (CEPR), 77 Bastwick Street, London EC1V 3PZ, UK;5. Centre for Business Taxation, Oxford University, Park End Street, Oxford OX1 1HP, UK;6. SOSE — Soluzione per il Sistema Economico S.p.A, Via Mentore Maggini, 00143 Rome, Italy;1. Department of Economics, University of Michigan, Ann Arbor, USA;2. Economics and Planning Unit, Indian Statistical Institute (Delhi), 7 SJS Sansanwal Marg, New Delhi 110016, India |
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| Abstract: | One area of fiscal policy in which several countries have delegated responsibility to an independent agency is the distribution of national resource transfers across regional and local governments. Such delegation is expected to promote equity and efficiency, and mitigate distortions created by political incentives. This paper tests whether delegation to an independent agency indeed makes a difference by contrasting the impact of partisan politics on two types of fiscal transfers to states in the Indian federation over a period of time, 1972–1995. The pattern of evidence shows that, while the transfers that are determined by the central political executive are indeed distributed to favor particular states that are politically important for the central ruling party, the transfers that are delegated to an independent agency serve to constrain such partisan impact. |
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