Abstract
Studies of government size usually try to identify the factors that explain what parts of economic activity are brought within the public sector and what parts are left strictly in private hands. Modern governments are now so large that the question of what determines the private/public composition, or privateness, of public expenditure is of comparable importance for understanding the role of government in society. In this paper, we use a model of the composition of public budgets to uncover the importance of electoral competitiveness and other factors in the evolution of the privateness of public expenditure across the Indian states. These states vary widely in their socioeconomic characteristics while sharing a common political heritage based on parliamentary government. New measures of public expenditure on private targetable goods and of electoral competitiveness at the Indian state level accompany the paper along with a primer on Indian public finance accounting practices in an Online Appendix. The empirical analysis shows that the degree of privateness in India’s more developed states falls substantially with greater political competition and with rising incomes, while in the less developed states it responds more weakly to these key factors and in some cases even inversely.
Highlights
Introduction and overviewStudies of government size in a democracy have traditionally focused on uncovering the factors that explain what parts of economic activity are brought within the public sector and what parts are left strictly in private hands
Governments are so large in the economic life of most economies that the question of what determines the division within the public sector between what is ‘public’ and what is ‘private’ is of substantial importance for an understanding of the contemporary role of government in society
We have focused on how the intensity of political competition and the real incomes of voters affects the prices of political support using public expenditure on public goods and using public expenditure on private targetable goods
Summary
Studies of government size in a democracy have traditionally focused on uncovering the factors that explain what parts of economic activity are brought within the public sector and what parts are left strictly in private hands. We construct a model with core and swing voters of the private–public composition of public budgets, where electoral competitiveness and income along with other factors play key roles. We apply this model to explain the evolution of the privateness of the budgets of major Indian states over a substantial period of time. While our empirical investigation of the role of political competition in determining the composition of Indian state budgets is to our knowledge unique, we are not the first to study the privateness of public expenditure in a developing country context.
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