An autonomous research institute under the Ministry of Finance


Assessing Public Expenditure Efficiency in Indian States

Publication date

Mar, 2018


NIPFP Working Paper No. 225


Ranjan Kumar Mohanty & N.R. Bhanumurthy


In recent times, the issue of public expenditure efficiency has drawn the attention of both policymakers and researchers globally. Even in India, with the increased demands for Outcomebased Budgeting, the assessment of public expenditure efficiency becomes much more crucial. Towards this direction, by using outlays-outcome framework, the paper attempts to measure the efficiency of government expenditures on Social Sector, especially health and education, among the Indian States using various DEA approaches. Further, the paper also attempts to understand what drives the public expenditure efficiency among the States. For this, it looks at the role of economic growth as well as quality of governance. The results of input-oriented and outputoriented DEA approach finds a large variation in the efficiency of public spending as well as scope for resource saving among Indian States. The results suggest that States are spending their resources more efficiently on education than on health and overall social sector spending. Further, it also finds that both quality of governance and economic growth affects the efficiency of education, health, and social sector with governance to have larger effect compared to growth. Overall, the study suggests that focus on good governance could yield better outcomes from public spending.
Keywords: Public Expenditure, Education, Health, Data Envelopment Analysis, India.
JEL codes: H51, H52, I18, I21, C14, O53
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