Dr. Shyam Nath

This study contributes to the development literature by providing a new perspective on understanding factors that influence human capital development in India. We examine the effects of ethnic, linguistic and religious diversity on various measures of human capital at the state and district levels. Based on indices of ethnic diversity calculated for 30 Indian States and 557 districts, we examine the direct effects of ethnic diversity on indicators such as infant mortality, education and health. Our findings suggest that, on average, ethnic diversity contributes to some elements of development. Specifically, we find evidence to support development-enhancing effects of diversity on education and health.

An augmented P-Star model is estimated and tested to identify the drivers of inflation in India. The model includes monetary and non-monetary factors, demand-pull and cost-push factors, and domestic as well as foreign factors. The results show that inflation in India is driven by a combination of monetary factors and non-monetary factors, some of which affect inflation on the supply side while others operate on the demand side. It turns out, however, that inflation in India is determined more by domestic rather than foreign factors.

The revenue objective to cover the identifiable costs (in full or partly) is important with respect to both fees and charges. All revenue sources – taxes, fees, fines and user charges – are instruments of cost recovery to meet the financial obligations of public administration and the public and private supply of public goods and services. In the case of publicly supplied local goods, such as public administration, public education, health services, street lighting and sanitation, cost recovery may not be the dominant objective. But cost recovery is tremendously significant in the case of privately supplied local public goods, such as water supply, sewerage, electricity and telephone. In recent years, user fees and charges have gained significance at the sub-national level mainly because of hard local budget constraints. Recession resulted in drastic cuts in intergovernmental transfers and reduced access to market loans. According to the 2009 International City and County Management (ICMA) State Survey in the US, for instance, 46 percent of reporting local governments increased existing fees by 23 percent and added new levies for additional funds (Ebel and Petersen, 2012). While these trends are encouraging, there is no systematic research to assess the efficacy of local government in collecting fees and user charges vis-à-vis performance of other institutional arrangements such as off- budget supply and privatization. The structure of this paper is as follows. Section 2 discusses the principles and practices of user fees and charges and their revenue potential. Section 3 analyzes factors adversely impacting the growth of beneficiary charges in local government budgets, including the centralization of revenue, intergovernmental fiscal transfers, and alternative fiscal strategies such as tax earmarking and piggybacking. Section 4 examines the trade-off between budgetary and privatization regimes of water supply and the efficacy of cost recovery policies. Section 5

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The chapter extends the literature in monopoly government as an expenditure leviathan. He constructs and tests a political cost (vote losses) model of fiscal federalism by explicitly incorporating the policy maker’s choice of a structure of tax authority to expand the leviathan at the central and state levels. Given that the political cost of raising the same amount of revenue is lower at the central level but the political gain of spending this revenue is higher at the state level, state leviathans collude with the center for revenue centralization and sharing. Using income and public finance data for 17 major Indian states for the period 1975-97, He estimates both fixed effects and random effects models and tests three hypotheses. His results support the validity of the model. One of the important corollaries of the model is that the concept of expenditure stimulation of grants is less attractive. What emerges is the sub central expenditure stimulation of central budgets as retaliatory response. He concludes that decentralization of revenue bases and tax earmarking should be a key feature of the reform agenda of fiscal federalism in India.

The intent of this chapter is to discuss some of the theoretical and practical issues associated with tourismtaxation and to consider in more detail an approach that relies on a tax instrument that is already used at the local level in most developed and developing countries – property taxation.We begin by briefly addressing the major issues associated with identifying and measuring the external costs associated with tourism. That is followed by a brief review of analyses of alternative revenue instruments designed to internalise those external costs. The possibility of using property taxation is then addressed followed by a short summary and conclusion.

This paper addresses donors’ policy of providing external assistance to developing countries using an inter-temporal framework, over a finite horizon. While the framework adopted tracks the motivation of providing foreign aid, it is altogether consistent with the paradigm of forward-looking governments in developed economies. Given uncertainties surrounding income flows, and the gradual convergence towards generational accounting conventions in public finances of donor countries, an attempt is made to empirically ascertain whether foreign assistance is provided on a random basis or is backed by a systematic foreign aid policy. Our findings from a panel of 27 developing countries clearly contest the hypothesis that grants are provided on a random basis. This would otherwise suggest the existence of a consistent policy characterising granting behaviour, urging the need for recipient governments to incorporate grants in their budgetary decision-making.

This paper contributes to the literature on foreign aid by exclusively explaining a donor’s motivation for foreign external assistance. The underlying framework focuses on recipients’ needs for foreign aid to address income inequality as and when growth occurs. A tax-subsidy policy is hypothesised in the manner advocated by optimal tax theory to effectively deal with inequity by minimizing the distortionary effects of income taxes. This framework is ultimately endogeneized in the recipient’s budget constraint, from which the donor derives the demand for foreign assistance. The outcome supports an inverted-U relationship between foreign aid and per capita income in the way postulated by the conventional Kuznets curve. Our postulate is empirically tested using a panel of 29 developing countries across a time span of 27 years; and from which the hypothesis of an ‘Aid-Kuznets’ curve could not be rejected.

This paper develops an analytical framework to explain foreign aid motivation and donor behavior, using an interdependent utility maximization framework, in which donor faces two constraints; its own budget constraint and the recipient's utility function. This paper specifically contributes to the literature on foreign aid by integrating the various objectives underlying aid allocation, namely recipient income and trade performance,
international income distribution and donor reaction to fungibility. Between trade interest and international income distribution, the former is found to be a more common consideration in aid allocation. One of the important results is that the fungibility of foreign aid is established as a major problem so as to invite donor’s retaliation. However, the retaliatory response appears to co-exist with other motivations.

External and internal development funds may be substitutes or complementary in financing development projects. We construct a welfare-maximizing model of a community, explicitly incorporating the decision-makers' choice between internal and external resources for development purposes. The model is estimated with Mauritian data, which include periods of rising foreign aid and substantial repayment. The computed values of substitution elasticity between the two sources of funds, derived from the social choice process, indicate that internal and external funds are complementary and therefore external funds do not seem to be fungible.

We extend the literature on local expenditure determination by showing that bargaining and grand coalition seem to facilitate collective decision-making in an assembly of elected councillors. We demonstrate that the solution of the game turns on the principle of equal relative concession. Based on limited experimentation, we assess the performance of local governments and find that group dominance frustrates local expenditure efficiency in urban localities of India.

Reassignment of local functions to state government and fiscal decentralisation seem to be contradictory. Whether these fiscal strategies are compatible policy packages is an empirical question. The crucial issue is as to how local governments respond to reassignment, a response which may be reflected in their willingness to spend on remaining functions. If reassignment stimulates local expenditure such that the extent of decline in fiscal decentralisation (the local share in total state-local expenditure) is less than the amount warranted, the two fiscal strategies can be taken to be compatible. To test this hypothesis, conditions for compatibility are postulated in terms of tax efforts of state and local governments. With use of Indian fiscal data, state and local tax efforts are computed and compared for selected states, as a first approximation. There is no conclusive evidence to show that reassignment has invariably exerted any dampening impact on local expenditure.

The objective of this paper is to investigate the extent of public expenditure decentralization among developing countries, and to identify its determinants. Using data compiled from international agency sources, and from primary sources, it is shown that fiscal decentralization has gone significantly farther in developed than in developing countries. The use of factor analysis and regression analysis indicates three general explanations for the wide variation in fiscal decentralization among countries. The public expenditure share of subnational governments appears to be greater where the level of economic development is higher, in countries with larger populations, and in countries whose central government budgets carry less of a defense burden. The results also suggest that where central governments mobilize more resources through the revenue system, the subnational government's share of expenditures may be lower -- taxes are more likely to stick where they hit than to be passed through as grants to local governments.

Urban property taxes in India are levied against the annual rental value of the property. At the same time, Indian housing policy has relied upon rent controls to constrain increases in house rents. Since the Courts have found that property assessments are to be based upon rents paid rather than on what the property would fetch in a free market, rent control has adversely affected the level and growth of property tax revenues in Indian cities.
In this study the author has constructed a model capable of showing the effect of rent controls on the property tax base of Indian cities. The model, which incorporates the spillover effects of rent control on rents of non controlled houses, is sufficiently general for application to other locations where similar institutional constraints apply. The model is estimated using the data of City of Calcutta. The finding indicates that relaxation of rent controls could result in a more than doubling of Calcutta's property tax revenues, from 160 million rupees to approximately Rs. 350 Million using current rate structures.

Doring the period of rising prioeB, income tax paJers are put to a higher tax burden owing to interaction of loBation and a progressive tax schedule. On 'he one hand, the increase in income (money or real) puahee a portion of the income into the higher income brackets aubjeo$ to higher marginal tax ra'-, on the other, the rise in price leads to eroaion in purchasing power. If the price level is relatively atable, increase in money income and subeequent increase in tax liability may be juetified on the groUDd of increased ability to pay. But during the rleiog prioea, the riBe in tax burden may or may not be in oonformi$y with 'be rille in real inoome creating $hereby p088ibi·litlee of injllBtioe in taxauon.

Planned developmental elfort n-itatee enhancing the magnitude of financial re110uroe~~. During the pro- of development, both level· and compoeition of tax revenue undergo coneldtrable change. The p~nt paper propoeea to dillcuu trende in . taxation during the lut decade io fourteen Btatee of Indian Union, mainly · in tenu · of the ' . Level· of tuatlon.1 Tax ratio (T{Y), marginal tax rate (M&T) and the income eluticlty of U.x revenue (E) have been uaed ae indicators of Ute level of tuation

Agricultural land taxes can be an important source of deve. Jopmflnt finance in underdeveloped countries. In developing countriee adequate taxation of the furroing sector is more important than it Ia in advanced countries, sinca it has a special contribution to make to the emooth proceee of development. In underdeveloped countries the agricultural &ector is the largest sector of the economy and contribu&ee about 80 .per cent of the national product. If this eector remain& untaxed or lightly taxed, either the burden of taxation will be ehifted to other aeotore or the econom.ic growth may elow down for lack of adequate finance. Again, iD each countriea the agricultural sector baa pined much aa compared to other eectors. If thie aeotor is undertaxed the gains will be enh&nced at the coat of other aectore. For example, In India &!though the income of the agricultur&l aeotor inoreaeed, on an averege, by 11 per cent & year between 1950 and 1970 and ~he prfcee of farm products went up by 48 per cent during the Third Plan period againat the 25 per cent gain registered by lnd118trial products, bardlv any elfort baa been made to mop up the additiouaJ gains of the former. As a consequence, the burden of taxation baR been ahifted to non-agricultural aector.

Small may be beautiful, but small island states have a big problem - the environmental consequences of climate change. Emanating from research at the University of Mauritius and with contributions from a wide range of experts,&nbsp;<em>Saving Small Island States</em>&nbsp;introduces and explains the key environmental policy challenges and suggested responses to them.

Using data from the World Values Survey (WVS) on Singapore and Trinidad and Tobago, we provide empirical evidence on the relationship between social capital and subjective wellbeing. We show that social capital is an important factor in improving quality of life although the effects of social capital, measured by trust and social networks, are more pronounced in Singapore than in Trinidad and Tobago. We argue that the effect of social capital is influenced by the country’s development level.

This chapter introduces the relevant concepts in environmental and natural resource analysis and brings out why there is a need for governmental regulation and policy for environmental management. Classification and definitions of environmental goods and services are presented in the second section. In the third and fourth sections, an attempt is made to discuss environmental goods as a necessity or an amenity and as public goods and to examine the major characteristics of these goods. In the fifth section, policy context is examined. Given the public goods nature of environmental resources, the importance of conscious policy on use and conservation is highlighted. Concluding remarks are contained in the last section.

Economic models are prepared utilizing stylized facts and available information about the economy and economic agents. The overwhelming dependence on market efficiency and limitations of cost benefit analysis tend to underplay the role of environmental resources in growth process. What is vital to note is that invisible positive externalities of environmental resources are under-estimated but negative externalities generated during production and consumption activities are also under-estimated. The end result is that economic activities creating negative externalities are boosted due to inefficiency of markets and public policy failure. There is however a paradigm shift in economic thinking and environmental contributions to economic growth are well recognized. Technically speaking, environmental contributions to growth are part of total factor productivity, which derives its strength from environmental and other missing factors in the model. Further analytical advances are necessary to isolate the environmental impacts.Besides the concept of externalities in the context of environmental degradation, an analysis is presented to explain the existence of externalities in relation to sustainable development by bringing in historical (inter-temporal) externalities, overlapping generational externalities and intergenerational externalities.
We argue that pollution anywhere is a danger for pollution everywhere. In other words, a simple application of polluter pays principle would not help in recovering the cost of damage as polluters are spread at large. Conventional environmental instruments are handy but not adequate to handle border less pollution. While integration of sustainability in development strategy is crucial, it is necessary to enact mandatory laws. Both preventive and restoration expenditures should be made mandatory on the lines of mandatory corporate social responsibility in some countries. A separate budgetary head would need to be created. This budget should be run on the model of performance budgeting purely in terms of environmental projects. What is more instructive is that since externalities have no national boundaries, tackling global externalities would necessitate intergovernmental and international co-operation. This would ensure the application of international best practice technologies and knowhow in environmental governance. While the success of international agreements is slow, climate clubs may hold promise. Small islands however should be adopted as experimental laboratories, which would benefit both the threatened islands in particular and global environment in general.

A sustainable environment is a precondition for sustainable economic development. When an economy produces GDP by using energy and other inputs, the planet produces an invisible product, known as photosynthetic product of the planet (PPP) as a natural process. This PPP however contributes to the production of GDP as an invisible input. As GDP increases, there are adverse effects on the growth of PPP due to utilisation of environmental and natural resources. If degradation of the environment is not arrested and exhaustible natural resources are not conserved, the natural growth of PPP and consequently, future GDP growth will decline. In other words, the environmental cost of producing GDP will tend to increase, alongside the threats posed by global warming.