Parag, Waknis (2012): Political economy of sub-national spending in India.
Download (1MB) | Preview
Many states in India have time and again elected a multiparty or a coalition government. Research so far has shown that these differences in political cohesiveness of the ruling political entity has influenced the spending choices of the state governments. However, the evidence is not completely conclusive. Different authors have used different measures of political fragmentation deriving opposite results for their effect on state government spending. There are also differences in the way economists and political scientists have dealt with the issue econometrically. This is coupled with a lack of a theoretical model of choice of public spending under alternative political regimes in the Indian context. I address these gaps in the literature by first building a theoretical model of spending policies of a state government. In this model, extensiveness and intensity of credit constraints influences equilibrium voting policies and hence the spending policies of governments in power. The resulting predictions are then comprehensively tested using data on seventeen Indian states over the period of twenty years. The econometric analysis provides substantive evidence for the importance of political factors in determining government spending. Specifically, we find that that politically less cohesive governments tend to spend more on education than their more cohesive counterparts. There is also some evidence on electoral cycles in health expenditure. Further, the analysis supports the model’s underlying notion of credit constrained voters determining the spending policies of the government via the degree of political cohesiveness of the government in power.
|Item Type:||MPRA Paper|
|Original Title:||Political economy of sub-national spending in India|
|Keywords:||political economy, government spending, credit constraints and voting, differentiated election platforms, coalition governments in India|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures
|Depositing User:||Parag Waknis|
|Date Deposited:||21. Feb 2012 04:50|
|Last Modified:||20. Feb 2013 10:53|
Acemoglu, Daron, Simon Johnson, and James A. Robinson, “Reversal Of Fortune: Geography And Institutions In The Making Of The Modern World Income Distribution,” The Quarterly Journal of Economics, November 2002, 117 (4), 1231–1294.
Acemoglu, Daron and Pierre Yared, “Income and Democracy,” American Economic Review, June 2008, 98 (3), 808– 42.
Alexander,Marcus,Matthew Harding, and Carlos Lamarche, “Quantile Regression for Time-Series-Cross- SectionData,” International Journal of Statistics and Management System, 2011,, Vol. 6, No. 12, pp. 4772.
Angrist, Joshua D and Jorn-Steffen Pischke, Mostly Harmless Econometrics- An Empriricists Companion, Princeton University Press, 2009.
Baltagi, Badi, Econometrics Analysis of Panel Data,Wiley, 2008.
Bartels, Brandon L., “Beyond fixed versus random effects: A Framework for improving substantitve and statistical analysis of panel, time series-cross sectional, AND multilevel data.”
Beck, Natheneil, “Time Series- Cross Section Methods,” Technical Report, Department of Politics, New York University 2006.
Cameron, A Colin and Pravin K Trivedi,Microeconometrics Using Stata, STATA Press, 2010.
Chaudhuri, Kausik and Sugato Dasgupta, “The political determinants of fiscal policies in the states of India: An empirical investigation,” The Journal of Development Studies,May 2006, 42 (4), 640–661.
Cole, Shawn A., Andrew J. Healy, and Eric Werker, “Do Voters Appreciate Responsive Governments? Evidence from Indian Disaster Relief,” SSRN eLibrary, 2008.
Ghate, Chetan, Radhika Pandey, and Ila Patnaik, “Has India emerged? Business cycle facts from a transitioning economy,”Working Papers 11/88, National Institute of Public Finance and Policy April 2011.
Kamath, Rajlakshmi, Mukherjee Arnab, and Maria Sandstrom, “Accessing Institutional Finance: A Demand Side Story of Rurual India,” Economic and PoliticalWeekly, 2010, XLV, No. 37.
Kiyotaki, Nobuhira and John Moore, “Credit Cycles,” Journal of Political Economy, 1997, Vol. 105, No. 2, pp. 211–248.
Krasa, Stefan and Mattias Polborn, “Political Competition between Differentiated Candidates,” CESifo Working Paper Series 2560, CESifo GroupMunich 2009.
Krasa Stefan and Mattias Polborn, “The binary policy model,” Journal of Economic Theory, 2010, 145 (2), 661 – 688.
Lalvani,Maya, “Coalition Governments: Fiscal Implication for the Indian Economy,” American Review of Political Economy, 2005, Vol. 3(1), 127–163.
Persson, T. and G. Tabellini, Political economics: explaining economic policy Zeuthen lecture book series, MIT Press, 2002.
Polanyi, Karl, The Great Transformation 2001.
Saez, Lawrence, “Political cycles, political institutions, and public service expenditure in India (POLEXIndia) data set, version 2008.1,” 2008.
Saez Lawrence and Aseema Sinha, “Political Cycles, Political Institutions and Public Expenditure in India, 1980-2000,”
British Journal of Political Science, Cambridge University Press, 2009.
STATA, Release 12 Longitudinal Data/ Panel Data.
Tandon, Sharad, “Economic Reform, Voting, and Local Political Intervention,” Technical Report, University of California, Berkeley 2007.
Waknis, Parag, “Endogenous Monetary Policy: A Leviathan Central Bank in a Lagos-Wright Economy,” Working papers 2011-20, University of Connecticut, Department of Economics October 2011.
Wooldridge, Jeffrey, Econometric Analysis of Cross Section and Panel Data, The MIT Press, 2011.