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

Cornelis W. Haasnoot

No 285, GIGA Working Papers from GIGA German Institute of Global and Area Studies

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. I 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 (search for similar items in EconPapers)
JEL-codes: H11 H40 H50 H72 H77 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:gigawp:285

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