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Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala

Author

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  • Shrestha, Ruzel

    (National Institute of Public Finance and Policy)

  • Chakraborty, Lekha

    (National Institute of Public Finance and Policy)

Abstract

Our paper analyses the subnational public finance practices in one of the States in India -Kerala- and estimate the fiscal marksmanship. Fiscal marksmanship is the analysis of fiscal forecasting errors. Kerala, though well known for its achievements in human de-velopment outcomes, is facing fiscal stress within the rule-based fiscal framework and in-novating policy tools to achieve a revenue-led fiscal consolidation. We have examined the Budget Estimates, Revised Estimates and Actuals for the macro-fiscal variables from Kerala State Budgets, for the period from 2011-12 to 2016-17 to analyse deviations between the projections and actual realizations. We found that the magnitude of forecasting errors was significant in case of tax revenue. While partitioning the sources of errors in the budg-etary forecasting in Kerala, we observed that the random components of the error were larger than the systematic components for all the macro-fiscal variables, except for grants, own revenue and capital expenditure. This has three macro policy implications. One, the volatility in intergovernmental fiscal transfers can affect the stability of finances at subnational level. Two, the State needs to identify innovative policy tools for Addi-tional Resource Mobilisation (ARM) to maintain the human development achievements. Three, within the rule-based fiscal framework, State has to innovate financing strategies for strengthening growth-inducing capital infrastructure formation.

Suggested Citation

  • Shrestha, Ruzel & Chakraborty, Lekha, 2019. "Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala," Working Papers 19/261, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:19/261
    Note: Working Paper 261, 2019
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    References listed on IDEAS

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    1. Pratik Dutta & Mehtab Hans & Mayank Mishra & Ila Patnaik & Prasanth Regy & Shubho Roy & Sanhita Sapatnekar & Ajay Shah & Ashok Pal Singh & Somasekhar Sundaresan, 2019. "How to Modernise the Working of Courts and Tribunals in India," Working Papers id:13028, eSocialSciences.
    2. Chakraborty, Lekha & Sinha, Darshy, 2018. "Has Fiscal Rule changed the Fiscal Marksmanship of Union Government?," Working Papers 18/234, National Institute of Public Finance and Policy.
    3. Morrison, Rodney J, 1986. "Fiscal Marksmanship in the United States: 1950-83," The Manchester School of Economic & Social Studies, University of Manchester, vol. 54(3), pages 322-333, September.
    4. Mukherjee, Sacchidananda, 2019. "Exploring Low-Carbon Energy Security Path for India: Role of Asia-Pacific Energy Cooperation," Working Papers 19/259, National Institute of Public Finance and Policy.
    5. Nithin K. & Roy, Rathin, 2014. "Finance Commission of India's Assessments: A Political Economy Contention between Expectations and Outcomes," Working Papers 14/141, National Institute of Public Finance and Policy.
    6. Chakraborty, Lekha S, 2019. "Indian Fiscal Federalism at the Crossroads: Some reflections," MPRA Paper 93516, University Library of Munich, Germany.
    7. Davis, J M, 1980. "Fiscal Marksmanship in the United Kingdom, 1951-78," The Manchester School of Economic & Social Studies, University of Manchester, vol. 48(2), pages 187-202, June.
    8. Rathin Roy, 2015. "Finance Commission of India’s Assessments: A Political Economy Contention between Expectations and Outcomes," Working Papers id:6581, eSocialSciences.
    9. D. A. L. Auld, 1970. "Fiscal Marksmanship in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 3(3), pages 507-511, August.
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    Citations

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    Cited by:

    1. Lekha Chakraborty & Pinaki Chakraborty & Ruzel Shrestha, 2020. "Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India," Economics Working Paper Archive wp_964, Levy Economics Institute.
    2. Gupta, Manish & Chakraborty, Pinaki, 2019. "State Finance Commissions: How successful have they been in Empowering Local Governments?," Working Papers 19/263, National Institute of Public Finance and Policy.
    3. Chakraborty, Lekha & Chakraborty, Pinaki & Shrestha, Ruzel, 2019. "Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India," MPRA Paper 95921, University Library of Munich, Germany.
    4. Jena, Pratap Ranjan, 2019. "Living under Fiscal Rules: Fiscal Management Response and Resource Allocation Choices for State of Odisha," Working Papers 19/264, National Institute of Public Finance and Policy.
    5. Ghosh, Anindita & Chakraborty, Lekha, 2019. "Analysing Telangana State Finances: Elongation of Term to Maturity of Debt to Sustain Economic Growth," Working Papers 19/288, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Fiscal marksmanship ; fiscal forecasting errors ; fiscal rules;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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