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Public Sector Spending and Economic Growth in India

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  • Khundrakpam, Jeeavn Kumar

Abstract

The paper analyses the dynamic interaction between the public sector expenditure and national income in India for the period 1960-61 to 1996-97. It finds a stable long-run relationship between public sector expenditure and national income in India, with the causality running strictly from the former to the latter. The study also indicates that long-run positive impact of public sector expenditure on national income would turn adverse if the growth of the former is excessive. In the short-run, however, there is a trade-off between growth in public sector expenditure and income. Thus, though national income growth in India seems to be investment or demand led, there is the need for maintaining a proper balance between public sector expenditure and investment for economic growth.

Suggested Citation

  • Khundrakpam, Jeeavn Kumar, 2003. "Public Sector Spending and Economic Growth in India," MPRA Paper 51105, University Library of Munich, Germany, revised 2003.
    • Handle: RePEc:pra:mprapa:51105
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    References listed on IDEAS

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    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Murthy, N R Vasudeva, 1993. "Further Evidence of Wagner's Law for Mexico: An Application of Cointegration Analysis," Public Finance = Finances publiques, , vol. 48(1), pages 92-96.
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    5. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
    6. Ganti, Subrahmanyam & Kolluri, Bharat R, 1979. "Wagner's Law of Public Expenditures: Some Efficient Results for the United States," Public Finance = Finances publiques, , vol. 34(2), pages 225-233.
    7. Peacock, Alan & Scott, Alex, 2000. "The Curious Attraction of Wagner's Law," Public Choice, Springer, vol. 102(1-2), pages 1-17, January.
    8. Hondroyiannis, George & Papapetrou, Evangelia, 1995. "An Examination of Wagner's Law for Greece: A Cointegration Analysis," Public Finance = Finances publiques, , vol. 50(1), pages 67-79.
    9. Ram, Rati, 1986. "Causality between Income and Government Expenditure: A Broad International Perspective," Public Finance = Finances publiques, , vol. 41(3), pages 393-414.
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    Cited by:

    1. Ramu M R, Anantha & Gayithri, K, 2016. "Fiscal deficit composition and economic growth relation in India: A time series econometric analysis," MPRA Paper 76304, University Library of Munich, Germany, revised 08 Sep 2016.
    2. Hrushikesh Mallick, 2008. "Government Spending, Trade Openness and Economic Growth in India: A Time Series Analysis," Working Papers id:1809, eSocialSciences.
    3. Priya Ranjan & Prasant Kumar Panda, 2022. "Pattern of Development Spending and Its Impact on Human Development Index and Gross State Domestic Product in Low-income States in India," Journal of Development Policy and Practice, , vol. 7(1), pages 71-95, January.
    4. Rashmi Rastogi & Sangeeta Chakravarty & Basanta K. Pradhan, 2019. "GWagner’s Law for Low Income States in India," IEG Working Papers 383, Institute of Economic Growth.
    5. Masudul Hasan Adil & Aadil Ahmad Ganaie & B. Kamaiah, 2017. "Wagner’s Hypothesis: An Empirical Verification," IIM Kozhikode Society & Management Review, , vol. 6(1), pages 1-12, January.

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    More about this item

    Keywords

    Public Expenditure; National Income; Economic Growth;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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