Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analyzing the Flypaper Effects

Abstract

Using panel data models, we analyze the flypaper effects — whether intergovernmental fiscal transfers or states’ own income determine expenditure commitments — on ecological fiscal spending in India. The econometric results show that the unconditional fiscal transfers, rather than the states’ own income, determine ecological expenditure in the forestry sector at subnational levels in India. The results hold when the models are controlled for ecological outcomes and demographic variables.

Keywords: Intergovernmental Transfers, Flypaper Effect, Public Expenditures, Forestry Sector

JEL Classification: E6, H5, H7, Q5