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Efficiency Decomposition of Public Expenditure – Evidence from Indian States

Author

Listed:
  • Blessy Augustine

    (Assistant Professor, Madras School of Economics, Chennai, Tamil Nadu, India, 600025)

  • Raja Sethu Durai S

    (Professor, BITS-Pilani, Dubai)

Abstract

Assessing the efficiency of public expenditure and identifying the origins of inefficiency is imperative for any government to design effective policy measures. This study aims to decompose the efficiency of health and education expenditure of major Indian states as a two-stage process in which the first stage is infrastructure development and the second is service delivery. Using a two-stage relational Data Envelopment Analysis of Kao and Hwang (2008) for the year 2019-20, the empirical findings from this study suggest a significant variation in efficiency across the states in these two stages. Further, it also identifies that the governance of a state matters only in the infrastructure stage and not in the service delivery stage. The results from this study will help the states understand the stage where they have deficiencies and design their policy for improvement.

Suggested Citation

  • Blessy Augustine & Raja Sethu Durai S, 2025. "Efficiency Decomposition of Public Expenditure – Evidence from Indian States," Working Papers 2025-274, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2025-274
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    File URL: https://www.mse.ac.in/wp-content/uploads/2025/01/workpaper-274.pdf
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    More about this item

    Keywords

    Public expenditure efficiency; Data Envelopment Analysis; two-stage relational DEA; Governance;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • I1 - Health, Education, and Welfare - - Health
    • I2 - Health, Education, and Welfare - - Education

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