Bharatee Bhusana Dash (of NIPFP) and and Angara V. Raja (of Univ of Hyd) write this nice paper.
They look at reasons for governement spending at state level. The focus is to figure whether political reasons matter. Of course they do..
This study examines whether the allocation of public expenditures of the Indian states are significantly influenced by government specific political characteristics. Three types of government specific characteristics are considered: forms of governments, ideology of the government, and the electoral cycle. A number of hypotheses are designed to link these characteristics with expenditure allocation. The hypotheses are tested using a panel dataset of 14 Indian states spread over 27 fiscal years, from 1980-81 to 2006-07. The overall findings of the study suggest that the relationship between expenditure allocation and political determinants across the Indian states validate the proposed hypotheses even after controlling for the traditional and other unobservable determinants. These findings are robust to various forms of sensitivity analyses.
What is interesting is the scope of the study.
While the traditional determinants of the public expenditure enjoy wide empirical support, the empirical literature on the political determinants of the public expenditure is confined to the OECD countries with the exception of Mukherjee (2003), which considered a sample of 110 countries. There has been very little country-specific work done. It has been observed that expenditure allocation of the Indian states varies enormously just as it varies across the countries. India follows a multi-party electoral system with different national and regional political parties forming governments at national and state levels.
Budgets are passed at both levels of governments as per the constitutional provisions. Different political parties have different objectives and come from different social, political, and historical backgrounds. These parties constitute parts of different governments at different levels. In the light of these facts, it would be interesting to investigate whether these political factors affect the expenditure allocation of the Indian states or not. Using a panel dataset of 14 major Indian states spread over 27 years, from 1980-81 to 2006- 07, this study attempts to examine whether the size and composition of public expenditure of the Indian states are systematically related with government specific political characteristics or not.
The hypotheses are:
H1a: The current expenditure will be higher under a politically fragmented government as compared to a less fragmented or a single party government.
H1b: The current expenditure will be higher as the ideology of a government becomes more left-oriented.
H1c: The current expenditure will be higher in an electoral cycle year as compared to the other years during an electoral tenure.
H2a: The capital expenditure will be higher under a politically fragmented government as compared to a less fragmented or a single party government.
H2b: The capital expenditure will be higher as the ideology of a government becomes more left-oriented.
H2c: The capital expenditure will be higher in an electoral cycle year as compared to the other years during an electoral tenure.
The findings are pretty much in line:
- when a government’s ideological position shifts from a relatively right-wing position to a relatively left-wing position the percapita current expenditure increases by 1.8 percent
- As the measure of fragmented government changes with the introduction of an additional party in the government, its coefficient could be analyzed as percapita current expenditure increases by 2.5 percent with the inclusion of an additional party in the government.
- Increasing support to a government helps it in spending more in capital account and its coefficient could be interpreted as one percent extra support of a government increases the size of capital expenditure by 0.1 percent.
