Journal of Income & Wealth (The)

This paper aims at examining trends and identifying major determinants of fiscal deficit in respect of seventeen major Indian states. The study was based on regular time series data for 27 years’ period on six fiscal aggregates and GSDP, so as to generate regular time series on fiscal deficit for each of the states. Time series information was also compiled on 12 other likely concomitants of fiscal deficit. Equality of mean fiscal deficit among the states was tested through two-way analysis of variance technique, duly coupled with Tuckey'spost-hoc approach. For measuring the extent of temporal fluctuations in the generated time series on fiscal deficit for each of the states, eight different indexes of instability were computed, and were subjected to Kendall's concordance analysis. For making identification of the major determinants of fiscal deficit among the states, we have made use of step-up Frisch's (1934) confluence analysis as applied to panel datawith both fixed and random effects modelling. As regards the major findings from the paper, mean value of fiscal deficit for Haryana was the least but, then, the value was associated with a very high degree of instability. States like Bihar, Odisha, and Himachal Pradesh constituted the stratum associated with high fiscal deficit coupled with substantial instability. Further, in the light of the identified determinants of fiscal deficit, promotion of services sector, effective collection of sales tax and curtailment of non-developmental expenditure would pull down fiscal deficit among the Indian states. Stern checking of tax evasion and imposition of taxes (thogh at marginal rates) on large farm holdings could further help in this direction.