On Regional Inequality and Growth in India: Theory and Evidence

This paper examines, both theoretically and empirically, how initial inequality affects economic growth with particular reference to the subnational states in India, for which no such evidence exists. The theoretical model is characterized by endogenous growth within an OLG set-up, where growth of the subnational economy is driven by productive public investment financed by a linear output tax, and the optimum tax is determined by the median voter rule. State-level data for the period 1960-94 from sixteen major subnational states in India are used to investigate the nature of the 'reverse causation'. Both single cross-section and pooled regression estimates suggest a negative relationship between initial inequality and growth: more initially unequal states need to have more redistributive measures as dictated by the majority voters which in turn creates distortionary effects and lower growth. However rural inequality seems to matter more than urban inequality.

The Elite and the Marginalised: an Analysis of Public Spending on Mass Education in the Indian States

In the context of strikingly low literacy rates among Indian women and low caste popultaion, the paper explores whether and how far the interests of the marginalised poor are undermined by the dominant elite consisting mainly of the landed and the capitalists. We distinguish the dominant elite from the minority elite (i.e., elected women and low caste representatives in the ruling government) and also the marginalised as measured by the state poverty rate. Results based on the Indian state-level data suggest that a higher share of land held by the top 5% of the popultaion lowers public spending on education while presence of capitalist elite, as reflected in greater degree of industrialisation enhances it, even in poor states; the landed elite thus appears to be unresponsive to the underlying poverty rate. The effect of minority representation in the government appears to have a limited impact, indicating a possibility of their non-accountability to serve their cohorts and/or a possible allinace with the dominant elite.

Elite Dominance and Under-investment in Mass Education: Disparity in the Social Development of the Indian States, 1960-92

Inter- and intra-state disparities in levels of literacy rates in India are striking, especially for the marginalized groups of women and low caste population. The present paper offers an explanation of this disparate development in terms of elite dominance that discriminates against the minority groups of people and systematically under-invests in mass education. We experiment with various indirect economic and political measures of elite dominance. Results based on the Indian state-level data for the period 1960-92 suggest that higher share of land held by the top 5% of the population (a) lowers spending on education as well as total developmental spending and (b) increases total nondevelopmental spending. Greater proportion of minority representations (female and low caste members) in the ruling government however fails to have any perceptible impact on development (including education) spending in our sample. This analysis also identifies land reform and poverty alleviation as two important policy instruments to erode the initial disadvantage of the marginalised people.

The Impact of Simple Fiscal Rules in Growth Models with Public Goods and Congestion

In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The golden rule of public finance (GRPF) that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules which seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the GRPF is likely to be good from a growth perspective, but the welfare effects are more ambiguous.

The effect of inequality on growth: Theory and evidence from the Indian states

This paper examines the effect of inequality on growth among the sub- national states in India. Theoretically, growth of the regional economy is driven by productive public investment in the provision of health and education services financed by a linear output tax, and the optimum tax rate is determined by the median voter. Unlike the existing results, we obtain an ambiguous relationship between initial inequality and subsequent economic growth. Analysis of the Indian state-level data suggests that rural inequality influences growth of total output more than urban inequality, and does so, negatively. The indicator of intersectoral inequality is more important in explaining sectoral output growth.Endogenous growth, inequality, public investment, optimum tax rate, panel data analysis, Indian states.

Cold Bubble Humidification of Oxygen: Old habits die hard

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