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Political Inclusion

Fiscal Federalism at Work? Central Responses to Internal Migration in India

Author : Rikhil R. Bhavnani, Bethany Lacina | 2016
Published By: University of Wisconsin and Madison

Domestic migration is increasing throughout the developing world, in conjunction with a trend toward decentralization. Central governments may need to use fiscal transfers to address externalities from migration such as infrastructure shortfalls. Despite extensive theorizing on fiscal federalism, little empirical work asks whether central governments use transfers to reduce interjurisdictional externalities. We examine the extent to which migration prompts the redirection of central fiscal resources in India. Following the literature on distributive politics, we argue that mitigation of externalities in decentralized systems is influenced by partisan politics. Using monsoon shocks to migration, we show that increases in migration are met with greater central transfers but that these flows are at least 50% greater if the state-level executive is in the Prime Minister’s political party. This political bottleneck may explain why states maintain barriers to internal migration despite their economic inefficiency.

URL : https://faculty.polisci.wisc.edu/bhavnani/wp-content/uploads/2015/10/BhavnaniLacina2015.pdf

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