This paper analyses the impact of intergovernmental transfers on economic development in Indian states from 1990 to 2020 using panel fixed effects models. Our analysis challenges the conventional belief that transfers promote economic growth. Instead, our findings reveal a counterintuitive result: transfers may hinder economic development, particularly in special category states. This suggests that rather than fostering economic convergence, transfers have a growth-depressing effect on these regions. There are differences between general and special category states, with transfers having no significant impact on economic growth in the former and adverse consequences in the latter. It emphasizes the importance of understanding the relationship between fiscal transfers and economic development, particularly in transfer-dependent regions. As India continues to evolve its policies, our findings call for a closer examination of how states utilize transfers. These insights are crucial for policymakers to foster balanced and sustainable growth and reduce regional disparities.

We estimate the impact of expenditure decentralization on economic activity and public service delivery in the context of a nationwide reform in Indonesia. The Village Law of 2014 empowered one type of villages (desa) to provide health, education, and infrastructure services while providing unconditional fiscal transfers to fund these services. The other type of villages (kelurahan) saw no change in responsibilities or resources. Using a semiparametric difference-in-differences design, we find that decentralization temporary disrupted economic activity but eventually led to modest gains, as measured by nighttime luminosity. Future drafts will examine the impacts on public service delivery, as well as heterogeneous effects according to local administrative capacity.