Expenditure allocation and welfare returns to government: a suggested model

Abstract

A model of government expenditure allocation among sectors is developed and its application is illustrated through the data on major Indian states from 1971 to 1991. It is argued that, at the margin, changes in expenditure allocation are determined not by the magnitude of marginal productivities of the government effort, but by the behaviour of marginal returns in relative terms. Nine indicators from education, health, nutrition and other social sectors measure the index of basic welfare as the output of government efforts. Revenue and capital expenditures of state governments on the economic (physical capital) sectors and social (human capital) sectors are considered over two decades – 1971-81 and 1981-91 to examine the stability of the coefficients