Title: Analysing the impact of quality of government expenditure on economic growth: evidence from Indian states

Authors: Vandana Bhavsar; Pradeepta Kumar Samanta

Addresses: NICMAR Business School, NICMAR University, Pune, 25/1, Balewadi, N.I.A. Post Office, Pune – 411045, India ' NICMAR Business School, NICMAR University, Pune, 25/1, Balewadi, N.I.A. Post Office, Pune – 411045, India

Abstract: Proliferation of endogenous growth theories has engendered different models connecting government expenditure with a country's long-term growth. Numerous studies based on this growth theory revealed that different components of government expenditure have distinct impact on economic growth due to their differing productivity. Following fiscal consolidation measures in India, the quality of states' government expenditure has been compromised periodically. Therefore, overarching purpose of this study is to empirically examine which component of government expenditure more productively contributes to states' economic growth using a panel data of 29 states/union territories over a period 2004-2005 to 2019-2020. Empirical findings ratify a priori, that capital (revenue) expenditure is productive (unproductive) and positively (negatively) impacts states' economic growth, whereas, economic and social services expenditures are unproductive. The findings have some policy implications in order to sustain and enhance the regional economic growth and to maintain fiscal discipline while persevering with fiscal consolidation.

Keywords: government expenditure; capital expenditure; revenue expenditure; generalised method of moments; GMM; state; economic growth; productive government expenditures; unproductive government expenditures; panel data; social service expenditure; economic service expenditure.

DOI: 10.1504/IJSE.2023.127736

International Journal of Sustainable Economy, 2023 Vol.15 No.1, pp.72 - 92

Received: 14 Sep 2021
Accepted: 07 Nov 2021
Published online: 15 Dec 2022 *