Public expenditure and economic growth a study of selected states in india

Abstract

Public expenditure is a fiscal policy tool used to accelerate economic growth through newlinethe multiplier effect and remove inequality in the distribution of income and wealth. newlineThis study uses balanced panel data to investigate the effect of the components and subcomponents of public expenditure on the economic growth of the fourteen major nonspecial category Indian States from 1990-91 to 2020-21. The States are categorized into two panels, i.e., high and low-income. The components of public expenditure include development, non-development, and other expenditures. For a detailed evaluation, the present study focuses on the sub-components of public expenditure, i.e., the compositions of development expenditure (social and economic services expenditure) and non-development expenditure (general services expenditure) under revenue expenditure and capital outlay, to compare its effect on economic growth between the States panels. Since the development expenditure has a profound share in the total States expenditure compared to the non-development and other expenditures, the study also focuses on examining the effect of disaggregated development expenditure on economic growth. For this purpose, the study also investigates which components of the social and economic services expenditures are making a difference in the income level of the high and low-income States. Using the Panel Dynamic Ordinary Least Square technique, the results of long-run estimates revealed that the components of development expenditure, i.e., social and economic services expenditure, under the revenue expenditure account, contribute to economic growth in both cross-section dependent and slope heterogenous sub-national panels. The component of nondevelopment expenditure under the revenue expenditure account has a negative longrun relationship with economic growth for the high-income States panel.