The Effectiveness of Public Spending on Education and Health Care in Indian Economy

Abstract

The present study endeavours to examine the role of government spending on the education and health sectors with regard to promoting the gross domestic product (GDP) of India over the last three decades. Johansen cointegration test confirmed the existence of cointegrating relation. The causal impact of education and health care spending on GDP was further examined in the study. Results of the estimated vector autoregression (VAR) models showed that public spending on education and public spending on health care have not been able to exert any impact on GDP. On the contrary, it is found that two-periods-lagged GDP Granger caused the government spending on health care. The variance decomposition analysis indicates that in India, education spending and health care spending may contribute just about 3 per cent and 15 per cent respectively in constituting a GDP growth profile in the coming future. Therefore, it is found that India’s fiscal system has a relatively low impact on the distribution of income as far as public spending on education and health care are concerned. JEL Classification: I25