INEQUALITY, PUBLIC INVESTMENT AND DEFICITS IN INDIA

Errol D'Souza
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Errol D'Souza: Economics Area, Indian Institute of Management, Ahmedabad, India and Institute of South Asian Studies, National University of Singapore, Singapore

Chapter 18 in New and Enduring Themes in Development Economics, 2009, pp 429-443 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWith economic growth as a priority goal of the state it is a puzzle as to why public investment in India declined since the mid 1990s despite no significant reduction in fiscal deficits. This paper advances the proposition that public investment affects the returns to the distribution of factor endowments differentially. The rise in inequality then turns the attention of the state towards redistribution. When public expenditures are financed by borrowing, increased inequality that creates pressures for redistributive transfers crowds out public investment. Future income generation gets adversely affected by a reversal of public investment which makes creditors impose borrowing constraints on the state. This can take the form of the enactment of fiscal responsibility legislation.

Keywords: Development Economics; Happiness; Well-Being; Political Economy; Economic of Labour; Agricultural Economics (search for similar items in EconPapers)
Date: 2009
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