Assessing Sectoral Growth Impact of Public Expenditure in India

Biswajit Maitra () and Tafajul Hossain ()
Additional contact information
Biswajit Maitra: University of Gour Banga, Department of Economics
Tafajul Hossain: Malada Women’s College, Department of Economics

Journal of Quantitative Economics, 2025, vol. 23, issue 4, No 8, 1165-1190

Abstract: Abstract The sectoral growth impact of public expenditure in India is unexplored, although it is important to perceive the efficacy of fiscal policy. In this light, this study delves into the impacts of aggregate and its functional components of public expenditures – namely development, non-development, revenue and capital expenditures, combined with money supply and price level surging income of primary, secondary, and tertiary sectors abreast of the national economy from 1985 to 2022. The long-run analysis based on the normalized cointegrating vectors identified by the Johansen approach to cointegration reveals that only the capital expenditure stimulates the income of the secondary and tertiary sectors and the national economy, while other components produce a detrimental impact. The short-run analysis based on the cointegrated vector autoregression (CVAR) model confirms that the aggregate expenditure and its components, namely development and revenue expenditures, surge national and secondary sector income. Importantly, neither the aggregate expenditure nor its components has a consequential impact on the primary sector income. The impulse response analysis confirms that the growth impacts of aggregate and functional components, as identified by CVAR results, are robust. The study identifies that the three sectors have distinct growth trajectories, with the public expenditure, where the trajectory of the secondary sector is similar to the national growth trajectory. Therefore, while assessing the growth impact of public expenditure, being abreast of the national economy and exploring the issue at the sectoral level are critically important. Otherwise, inferences will suffer from aggregation bias and be misleading.

Keywords: Public expenditure; National income; Sectoral income; Fiscal policy; Money supply; India (search for similar items in EconPapers)
JEL-codes: C22 E6 H5 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40953-025-00471-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jqecon:v:23:y:2025:i:4:d:10.1007_s40953-025-00471-9

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40953

DOI: 10.1007/s40953-025-00471-9

Access Statistics for this article

Journal of Quantitative Economics is currently edited by Dilip Nachane and P.G. Babu

More articles in Journal of Quantitative Economics from Springer, The Indian Econometric Society (TIES) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().