The paper seeks to analyze the political economy of determining own tax revenue and selective state taxes of Andhra Pradesh (AP), India. The study suggests that the own tax revenue and revenue from selective state taxes of AP are mainly determined by a set of economic and need-based factors, rather than political factors. The political dummies like Congress government dummy and election year dummy are insignificant in influencing the own tax revenue, and other state taxes except tax on vehicles. But in many cases the coefficients of these political dummies are found to be negative, possibly signaling that the growth in tax revenues is undermined by political power shift and compromises.

The subnational unit of government in India gets its resources from own tax revenues, own non-tax revenues and federal resource transfer from Center in terms of tax sharing and grant-in-aid. Though own tax revenue is a major component of own revenue income of states, it also mobilizes resources from non-tax revenues like user charges, fees and profits from public undertakings. Mobilization of higher revenue resources from own taxes and non-taxes are not only essential for financing the increased state activities and achieving self-reliance, but it is also highly important for the stability of the finances of subnational governments.

The increasing revenue and fiscal deficits and mismanagement of public expenditures in states including Andhra Pradesh have limited their critical investments in both human resources and basic infrastructure, that are necessary for promoting economic growth. Considering the deterioration in state finances and increasing expenditures for financing plans, when the states are emphasizing larger own resource mobilization, and embarking upon measures to raise tax revenues and restructure tax systems through fiscal reforms, the study of determining factors of own tax revenue and revenue of important individual taxes of the state, will be helpful. Further, the determinants studies are intended to serve the purposes of `understanding', making `predictions', and drawing normative implications (Rao, 1979) for state finances. The state's own revenues specifically revenues from state's taxes mainly depend on the growth and structure of the economy. Sometimes these may be affected by the ideological leanings of the political party in power or vote bank politics specifically during the election years or initiatives by government in terms of reforms.

Eltony (2002) examined the determinants of tax revenue shares and constructed an index of tax effort for the Arab countries. His results suggest that the main determinants of the tax share in the GDP for the Arab countries are the per capita income, the share of agriculture in GDP and the share of mining in GDP. Other variables that are also important determinants are the share of exports and imports and in only the non-oil Arab countries, the outstanding foreign debt was found to be significantly and positively related to the tax share.

Public Finance, Political Economy, Own Tax Revenue, Selective State Taxes, Tax Revenue, Revenue Income, Subnational Governments, Public Expenditures, Economic Growth, Tax System, Gross Domestic Product, GDP, Gross National Product, GNP, Durbin Watson Procedure, Central Statistical Organization, CSO.