What Determines Public Funding for Elementary Education in India? Evidence From Before and After a Policy Change

ABSTRACT Keeping to the increased emphasis on better educational quality across India as a tool of nation‐ building strategy, this study attempts to integrate demand components in analyzing the determinants of public spending for elementary education across states in India from 2005 to 2016. The study finds that the income (per capita) elasticity of per student government expenditure is higher in post‐reform period. The state government's share of income devoted to elementary education remains roughly constant. Applying a correlated random effect approach to linear balanced panel data, this paper concludes that over time, a major determinant of growth of per student government expenditure is the growth of income per capita. Household demand for education, which is positively correlated with states' levels of development, influences public funding for education across states. The results will be important for analyzing general equilibrium models where the government aims to fulfill household demand.