This paper examined the impact of restricted and unrestricted fiscal grants on tax efforts of Rural Local Governments in India using ARIS/REDS panel data. We estimated the system as a whole via three stage least squares, where the first stage equations are the ones predicting the grants in order to deal with the simultaneities of grants received and taxation. The results have shown that a wage impacts on taxation exists, but is very small and, the productivity impact of grants on taxes is either zero or negligible. This means that incentives effects associated with the specifics of the intergovernmental fiscal system in the states is the main determinant of village taxation. We find that a bolder approach to shift about a third of the tied grants to block grants could lead own taxation to rise almost four fold. In the papers which analyze the services of education, health care and water supply we find the positive impacts of the village expenditures on these three services on choices, reduced private expenditures and outcomes.

Given that the phenomenon of capture of public programs by sections the population is rampant in developing countries, households can indulge in a strategy to improve their participating in public programs by bribing the suppliers of such programs. This is an important issue affecting both the supply of local public goods and the incidence of corruption. To the best of our knowledge there is no analysis of the impact of bribery on participating in a local public goods program, anywhere. Using a unique data set for rural India this paper addresses the question of whether households bribe elected officials responsible for assuring such supply to improve their access to local public goods. We find considerable evidence of such bribing. We also model the welfare effects of such bribing on groups of households as well as the impact of bribery on aggregate welfare. Several policy conclusions are advanced.