Amid persistent fiscal pressures, rising debt, intergovernmental imbalances, and global economic uncertainty, this paper investigates the flypaper effect in India’s North-Eastern Region, focusing on Manipur, a state structurally dependent on central transfers due to geographic isolation, a narrow tax base, ethnic diversity, and entrenched institutional arrangements. Despite fiscal reforms, heavy reliance on transfers raises concerns about fiscal autonomy and expenditure incentives. Using annual data (1987–2023) from the Reserve Bank of India and Union Budget documents, Augmented Dickey–Fuller and Engle–Granger tests indicate I(1) variables with no cointegration, justifying first-difference log-linear estimation. Results reveal that central grants generate significantly larger expenditure responses than own revenue across expenditure categories. The extended model specification finds no evidence supporting the Hamilton (1986) costly taxation hypothesis. Although grants stimulate short-run expenditure, grant dependence negatively affects expenditure growth, suggesting constrained long-run fiscal flexibility and persistent structural dependence, with implications for sustainability and decentralisation effectiveness in fragile federations.

This paper studies how the financial structure of public–private partnerships (PPPs) shapes incentives and project continuation. We develop a two-stage model of sequential moral hazard in which a private firm finances infrastructure through a mix of equity and bank debt. The firm chooses managerial effort and an endogenous continuation threshold after a liquidity shock, which occurs during the building phase. In equilibrium, memory-based contracts arise despite external financing. High performance in the building phase increases both the probability of continuation and operational effort. The model predicts that the effect of leverage on project survival depends on the net financing spread between the interest rate and the firm’s loss tolerance: when financing costs are moderate, debt reduces the likelihood of termination; when costs are high, this effect weakens. Using global project-level data (2006–2024), we find strong empirical support for these predictions.

This paper examines how international mutual funds transmit external shocks to local-currency (LC) government bond markets of emerging market economies (EMEs). Utilizing weekly data on the universe of transactions in the secondary market for Indonesian LC government bonds, we show that when global risk aversion and/or external interest rates increase, international mutual funds increase their net sales of Indonesian Rupiah (IDR) bonds, and their net sales, in turn, increase yields on IDR bonds. Our interpretation is that such external shocks prompt ultimate investors to request redemptions for their shares from mutual funds, and since mutual funds are typically subject to liquidity mismatch with liquid liabilities, fund managers are often pressured to sell the bonds possibly at fire-sale prices, increasing the bond yields. In contrast, trading of IDR bonds by other types of international investor such as insurance companies and pension funds do not cause such destabilising effects on the market.

We provide novel evidence on bureaucratic fragmentation and weak tax administrations as central enablers of low revenue mobilization in low-income countries. In collaboration with the municipal and national tax authorities in Kampala, Uganda, we cross-link previously siloed tax records for 155,000 firms and conduct a large-scale experiment with 60,000 firms. We document pervasive and selective tax evasion: only 14\% of verifiably active firms comply with both government tiers. Cross-record linkage almost triples detectable non-compliance while offering increased enforcement efficiency. This coordination dividend is left untapped. Firms exploit the resulting loopholes through partial informality, re-registering under new identities, and strategic late payments. In a cross-authority field experiment, deterrence nudges, including messages signaling inter-authority coordination, fail to offer a light-touch alternative to addressing fragmentation directly. Our findings establish bureaucratic fragmentation as a distinct and costly source of passive waste in tax administration that existing approaches to revenue mobilization rarely address.