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Tax Transfers and Demographic Transition: Empirical Evidence for 16th Finance Commission

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  • Singh, Yadawendra
  • Chakraborty, Lekha

Abstract

Against the backdrop of demographic transition in India, the study highlights the necessity of integrating the elderly population as a critical factor in formula-based intergovernmental fiscal transfers. The demographic transition, characterized by an increasing elderly population, imposes unique fiscal challenges on states, necessitating a revision of transfer formulas to ensure equitable and efficient resource distribution. The paper employs a historical analysis of fiscal devolution criteria, and analysing the impact of incorporating the elderly population into the devolution formula on the share of states in the total tax transfer to states. The findings indicate that integrating the elderly population into the tax devolution formula can significantly alter the distribution of resources among states, with states having higher shares of elderly populations benefiting more. The study recommends that there is a need to consider demographic changes by incorporating the share of elderly population to working age population ratio as a criterion by the Sixteenth Finance Commission to promote a more equitable and efficient allocation of resources.

Suggested Citation

  • Singh, Yadawendra & Chakraborty, Lekha, 2024. "Tax Transfers and Demographic Transition: Empirical Evidence for 16th Finance Commission," MPRA Paper 121658, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121658
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    File URL: https://mpra.ub.uni-muenchen.de/121658/1/MPRA_paper_121658.pdf
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    References listed on IDEAS

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    3. Chakraborty, Lekha S, 2019. "Indian Fiscal Federalism at the Crossroads: Some reflections," MPRA Paper 93516, University Library of Munich, Germany.
    4. Katharina Frosch, 2009. "Do only new brooms sweep clean? A review on workforce age and innovation," MPIDR Working Papers WP-2009-005, Max Planck Institute for Demographic Research, Rostock, Germany.
    5. Ronald Lee & Andrew Mason, 2010. "Fertility, Human Capital, and Economic Growth over the Demographic Transition [Fécondité, capital humain et croissance économique au cours de la transition démographique]," European Journal of Population, Springer;European Association for Population Studies, vol. 26(2), pages 159-182, May.
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    Cited by:

    1. Chakraborty, Lekha & Kaur, Amandeep & Balamuraly B & Yadav, Jitesh, 2024. "Mission VATSALYA: A Public Expenditure and Institutional Review of Child Protection Scheme across Districts in Odisha, India," Working Papers 24/418, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Finance Commission; Tax Transfers ; Demographic Transition; Elderly Population;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H0 - Public Economics - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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