Abstract

Public expenditure is an important fiscal instrument to achieve the Sustainable Development Goals. This study uses balanced panel data to investigate the impact of development expenditure, including social and economic services expenditure, and non-development expenditure, including general services expenditure, on economic growth for fourteen major non-special category Indian states from 1990-91 to 2020-21. The states are categorized into high-income and low-income panels. Using the Panel Dynamic Ordinary Least Square technique, the study finds that components of development expenditure under revenue expenditure contribute to economic growth. Non-development expenditure has a negative long-run relationship with economic growth for high-income states. Dumitrescu and Hurlin Granger causality results support both Wagnerian and Keynesian directions of causality in the short run. The findings also highlight problems of capital expenditure allocation and the risk of corruption.