Abstract:

The State governments incur expenditure on social and community services and on economic services. Social services include education, public health, welfare schemes for the workers, relief and rehabilitation of displaced persons, and the like. These services confer a positive advantage on the community and the more developed these services are the happier and better would be the people. The States spend on economic services which include development projects connected with agriculture, veterinary services, irrigation, electricity, rural and community development, road construction, development of industries, and the like. The most important non-development expenditure is on civil administration. Other items of non-developmental expenditure are debt services and famine relief operations. A very high rate of company income tax reduces the amount of investment funds and thereby slows down the rate of capital formation. Similarly, increased government borrowings raise the interest rates, which, in turn, discourage loans for private investment. State governments in the modern era are actively participating in the allocation, distribution and stabilization processes of the economy. As a result of their active participation in the various economic activities, the government finances have begun to play a crucial role in the social and economic development of the State. An understanding of the State government’s participation in the economic activities is possible by clearly analyzing the trends and patterns of the tax system, the public expenditure and the debt would help us in assessing the fiscal performance of the government that is being considered.

Keywords: