Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala

Shreshtha, Ruzel and Chakraborty, Lekha S (2019): Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala.

Abstract

Abstract Our paper analyses the subnational public finance practices in one of the States in India –Kerala- and estimate the fiscal marksmanship. Fiscal marksmanship is the analysis of fiscal forecasting errors. Kerala, though well known for its achievements in human development outcomes, is facing fiscal stress within the rule-based fiscal framework and innovating policy tools to achieve a revenue-led fiscal consolidation. We have examined the Budget Estimates, Revised Estimates and Actuals for the macro-fiscal variables from the Kerala State Budgets, during the period 2011-12 to 2016-17 to analyse the significant deviation between the projections and realizations of the State finances. We found that the magnitude of forecasting errors was relatively significant in case of tax revenue. While partitioning the sources of errors in the budgetary forecasting in Kerala, we found that the random components of the error were larger than the systematic components for all the macro-fiscal variables, except for own revenue, grants and capital expenditure. This has three macro policy implications. One, the volatility in intergovernmental fiscal transfers can affect the stability of finances at subnational level. Two, the State needs to identify innovative policy tools in Additional Resource Mobilisation (ARM) to maintain the human development achievements. Three, within the rule-based fiscal framework, State has to innovate financing strategies for strengthening growth-inducing capital infrastructure formation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal marksmanship, fiscal forecasting errors, fiscal rules
• Subjects: H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents; H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt

References

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