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AbstractThis study examines whether the impact of intergovernmental transfers on tax effort of Indian states depends on the composition of transfers (conditional vis‐à‐vis unconditional). It also tests the asymmetry hypothesis, which states that subnational governments respond to increases in transfers differently from losses. The evidence suggests that tax collections, including both indirect and direct taxes, are inversely related to unconditional transfers irrespective of whether they are increasing or decreasing. Imposition of conditions on transfers has prevented the Indian states from substituting such transfers for tax collection (direct tax collection is an exception). Direct tax collection responds most sensitively to transfers.

SUMMARYWeak legal enforcement of contracts leads to inefficient breach and an overall increase in breaches for firms and individuals. We suggest that firms use inventory holdings as a means to counteract weak contract enforcement. We test the hypothesis that firms operating in weak legal environments have a higher ratio of inventories to net sales than firms operating in strong legal environments. Empirical evidence in support of the hypothesis using data from over three hundred comparable firms from fourteen product groups across thirty‐nine countries is presented.