wl-6853-Developmental Spending and Its Impact on Income Inequality

The study examines the effect of public expenditure on income inequality in India. It analyze the development and non-development expenditures at state and central government levels from 1980-2020 and their impact on income disparity. Using the Gini coefficient to measure inequality, and government expenditure data from the Reserve Bank of India, the study employs the Fourier Auto Regressive Distributed Lag Model (FARDL) to handle data with multiple structural breaks. Results show that state government spending on development, social, and economic services reduce income inequality, whereas central government spending increases it. Specifically, a 1% rise in state development spending results in a 0.35% decrease in income inequality, while a similar increase in state spending on social and economic services decreases inequality by 0.05% and 0.03%, respectively. The study suggests that state governments should allocate more resources to improve income distribution, as they are more effective than the central government in this regard in India.