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Inequality, Public Investment And Deficits In India

In: New And Enduring Themes In Development Economics

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  • ERROL D'SOUZA

    (Economics Area, Indian Institute of Management, Ahmedabad, India and Institute of South Asian Studies, National University of Singapore, Singapore)

Abstract

With economic growth as a priority goal of the state it is a puzzle as to why public investment in India declined since the mid 1990s despite no significant reduction in fiscal deficits. This paper advances the proposition that public investment affects the returns to the distribution of factor endowments differentially. The rise in inequality then turns the attention of the state towards redistribution. When public expenditures are financed by borrowing, increased inequality that creates pressures for redistributive transfers crowds out public investment. Future income generation gets adversely affected by a reversal of public investment which makes creditors impose borrowing constraints on the state. This can take the form of the enactment of fiscal responsibility legislation.

Suggested Citation

  • Errol D'Souza, 2009. "Inequality, Public Investment And Deficits In India," World Scientific Book Chapters, in: Bhaskar Dutta & Tridip Ray & E Somanathan (ed.), New And Enduring Themes In Development Economics, chapter 18, pages 429-443, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812839428_0018
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