Indian National Institute Of Public Finance & Policy

A Local Fiscal Behaviour Model: Politico-Bureaucratic Utility-Maximization Approach

Email address: naresh@nipfp.org.in

Keywords: fiscal behaviour, fiscal decisions, budgetary decision-making process, local public goods, budget constraints, recursive system of equations, fiscal transfers.

JEL Classifications: H-72

Abstract:
The empirical research on the fiscal behaviour of local governments in developing economies are far and few in between. The objective of this paper is to model local fiscal behaviour with a view to estimate fiscal response parameters. Decision-making at local level regarding determination of revenue and expenditure are viewed as an outcome of a complex process. Application of constraint maximization approach of consumer behaviour theory has helped in identification of determinants of expenditure and revenue of a local body. In the model, the decision-maker maximizes his objective function under a budget constraint. This constraint operates as a resource constraint of a local body as well as the disposable income in the hands of the residents within the jurisdiction. The final budgetary outcome is assumed to be a resultant of a complex politico-bureaucratic process. It has been argued that there exists recursive interplay among the conditional grant, revenue, and expenditure.

PDF file of paper: naresh.pdf

Session: Social Economics I

Time: Friday, 6 July, 8:45am - 10:15am

Room: F