Does Size Matter? The Productivity of Government Expenditures and the Size of States: Evidence from India

Cornelis Haasnoot ()

Working Papers from eSocialSciences

Abstract: Some politicians argue for the splitting and combining of states to increase government productivity, but there is a dearth of empirical evidence on the optimal size of a state. Using data from Indian states, I test a model of the optimal size of the state. The paper find that size and preference heterogeneity do not significantly affect the productivity of a state government. However, when states are split up, the productivity of the root state’s government is negatively affected. This suggests that there may be a readjustment phase after state reorganisation that brings about this negative effect. It is important to consider this effect when redrawing state borders.

Keywords: India; fiscal federalism; government quality; ethnic heterogeneity; state reorganization; Productivity of Government Expenditures; size; state borders; economic growth; heterogeneity; Indian states (search for similar items in EconPapers)
Date: 2016-05
Note: Institutional Papers
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