Is there any evidence of tax-and-spend, spend-and-tax or fiscal synchronization from panel of Indian state?

ABSTRACT

We examine the government revenue and government expenditure nexus using a panel of 26 Indian states from 1980–1981 to 2014–2015. While most of the previous literature claims that revenue and expenditure series are non-stationary at level, we employ both Narayan and Popp two structural break and cross-sectional augmented Im-Pesaran-Shin (CIPS) panel unit root tests, and found two series are stationary. Further, our results derived from Dumitrescu–Hurlin panel causality test support the ‘fiscal synchronization’ hypothesis for Indian states. Finally, the revenue and expenditure of Indian state governments are segregated into revenue account and capital account, and again our results support the existence of ‘fiscal synchronization’ hypothesis.

KEYWORDS:

• Government revenue/government expenditure
• Indian states
• fiscal synchronization
• panel unit root
• Dumitrescu–Hurlin panel causality

JEL CLASSIFICATION:

• H71
• H72
• C33

Acknowledgements

The authors gratefully acknowledge the valuable suggestions received from the editor and anonymous referee in the earlier draft of this article. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the authors.