Working Paper: 465

An Analysis of Revenue Diversification Across Select Indian States

J S Darshini
K Gayithri

 

Abstract

The revenue structure is a composition of various taxes and non-taxes. States’ respective revenue structures with a relatively limited resource base exert pressure on their fiscal health. The processes of fiscal decentralisation have come to force the states to improve their own-source revenue mobilisation through diversifying their revenue structure and introducing fiscal reforms over time. As this empirical study aims at examining the trends as well as determinants of revenue diversification, this paper proceeds in two steps -First it provides a detailed analysis on the trends in revenue diversification across 14 major Indian states over the period 1980-81to 2014-15. Second, it explores the factors that determine the level of revenue diversification. The major findings point to a gradual decrease in the levels of revenue diversification in recent decades. In the process of revenue diversification, economic and institutional factors seem to be contributing more positively as compared to the political factors.

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