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Public expenditure, private investment and income: evidence in indian states

Author

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  • Jagannath Mallick

    (Institute for Studies in Industrial Development (ISID), India)

Abstract

The Fiscal Responsibility and Budget Management (FRBM) Act 2003 was introduced in India in order to reduce revenue deficit by curtailing revenue expenditure. This paper examines the impact of public expenditure by type and nature on the income by constructing new data on combined capital expenditure and combined revenue expenditure of Centre and State governments of 15 major States during the period 1993–94 to 2004–05. This paper finds that, though public expenditure crowds-out private investment, public expenditure of all types and nature positively contributes to state income due to the inclusion of some productive expenditure in the revenue account. All revenue expenditures are not growth retarding, and specifically, infrastructure investment may be used as an instrument by the Central and State governments directly for equitable allocation of private investment to achieve balanced income across states and higher economic growth as a whole.

Suggested Citation

  • Jagannath Mallick, 2013. "Public expenditure, private investment and income: evidence in indian states," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(1), pages 181-205, January-J.
    • Handle: RePEc:jda:journl:vol.47:year:2013:issue1:pp:181-205
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    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v047/47.1.mallick.html
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    Citations

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    Cited by:

    1. mallick, Jagannath, 2016. "Investigating the Relationship of Disparity in Income, Private investment and wage rate in Indian states: A Panel Cointegration Approach," MPRA Paper 87736, University Library of Munich, Germany, revised 09 Aug 2017.
    2. Jagannath Mallick, 2019. "The effects of government investment shocks on private investment: Empirical evidence from the developing economy," Indian Economic Review, Springer, vol. 54(2), pages 291-316, December.
    3. Jagannath Mallick, 2013. "Private investment in India: regional patterns and determinants," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(2), pages 515-536, October.

    More about this item

    Keywords

    Combined revenue expenditure; combined capital expenditure; public investment; domestic private investment; foreign private investment; Crowding-in/-out; Panel data; Indian States;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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