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Many states in India have time and again elected a multiparty or a coalition government. Research sofar has shown that these differences in political cohesiveness of the ruling political entity has influencedthe 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 fortheir effect on state government spending. There are also differences in the way economists and politicalscientists have dealt with the issue econometrically. This is coupled with a lack of a theoretical modelof choice of public spending under alternative political regimes in the Indian context. I address thesegaps in the literature by first building a theoretical model of spending policies of a state government. Inthis model, extensiveness and intensity of credit constraints influences equilibrium voting policies andhence the spending policies of governments in power. The resulting predictions are then comprehensivelytested using data on seventeen Indian states over the period of twenty years. The econometricanalysis provides substantive evidence for the importance of political factors in determining governmentspending. Specifically, we find that that politically less cohesive governments tend to spend moreon education than their more cohesive counterparts. There is also some evidence on electoral cycles inhealth expenditure. Further, the analysis supports the model’s underlying notion of credit constrainedvoters determining the spending policies of the government via the degree of political cohesiveness ofthe government in power.

Item Type: MPRA Paper -

Original Title: Political economy of sub-national spending in India-

Language: English-

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 PolicyH - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures-

Autor: Parag, Waknis

Fuente: https://mpra.ub.uni-muenchen.de/36813/

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