Inter relationship of sub national debt with the composition of public expenditure economic growth and fiscal transfer

Abstract

Topic: Interrelationship of Sub-National Debt with the Composition of Public Expenditure, Economic Growth and Fiscal Transfer newlineABSTRACT newlineThe fiscal health of Sub-National level Governments (SNG) has of late become a priority area in the public finance discourse globally, and in the contemporary fiscal policy debate in India. Subnational debt crises have led governments across countries to search for frameworks to restructure sub-national debt, and to undertake legal, regulatory, and institutional reforms that will sustain sub-national debt in the long run. Economic growth of a country has linkages with the debt level (as percentage of GDP) and public expenditure. Developing countries, like India, which intend to achieve faster economic growth, must manage their public expenditure and aggregate debt (national and sub-national combined) appropriately. Sub-national debt plays a vital role in financing the various public expenditure, both capital and social sector expenditure, as well as developmental and non-developmental expenditure. Developing countries face a lot of financial challenges in the path of development, viz., public expenditure exceeding revenue, high amount of deficit, unemployment, poverty, high level of indebtedness, etc. To bridge the deficit, the governments must either borrow or impose more tax on the public, with the later one having more adverse impact on the economy (as it increases inequality, and allocation of resources are affected) accordingly, public borrowing is generally preferred than tax. newlineThe existing body of research primarily focuses on finding the relationship between the public debt, public expenditure, and economic growth at the national level globally, whilst limited research has been done at the sub-national level. Till date, research gap exists in India in terms of understanding the impact of fiscal transfers on State s growth. It is also necessary to understand the relationship between the public expenditure (particularly, newlinedevelopmental expenditure) and fiscal transfer...