Political strongholds and budget allocation for developmental expenditure: Evidence from Indian states, 1971-2005

Abstract

This paper examines the effects of political factors on allocation of revenue budget for developmental expenditure by the sub-national governments, using data from 15 major states in India during the period 1971-2005. It measures the ruling party’s political stronghold on the basis of constituency level electoral outcomes and shows that greater stronghold of the ruling party in a state leads to significantly higher proportion of revenue budget allocated for developmental expenditure. It also shows that voters’ turnout and political regime change have positive and significant effect on proportion of revenue budget allocated for developmental expenditure. However, political ideology, within government fragmentation, disproportionality in representation, and effective number of political parties do not have any significant impact on budget allocation decisions of the Indian state governments. Results of this paper also indicate that greater reliance on market forces reduces the share of developmental expenditure. These are new and robust results.