Electoral Timing, Party Alignment and Tax Incentives through Intergovernmental Transfers
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Abstract
By factoring in the role of political factors this study is an empirical attempt to assess the impact of transfers from upper to lower tier governments under situations favourable for playing pork barrel politics. Using panel data analysis we have found that impact of intergovernmental transfers depends upon the nature of transfers and if transfers are uncertain or meant for programmes that are to be completed on sharing basis, they may incentivise the lower tier governments to increase their own tax revenues thereby enhancing their fiscal space. This positive relationship is insensitive to electoral timing and party alignment thereby reducing scope for pork barrel politics by upper tier governments. The negative impact of transfers as could be inferred from ‘swing voter’ and ‘loyal voter hypothesis’ is also not empirically supported. Lower SDP and higher rural population have negative impact on own revenues of lower tier governments. Study suggests that for strengthening the fiscal space of lower tier governments increased devolutions should be made via channels that focus on outcomes of expenditures, cost sharing by lower tier governments and improving the rural economy.
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