Time-Series Properties of State-level Public Expenditure

• Completion date जनवरी., 2001
• Sponsor Punjab Expenditure Commission
• Project leader R. Kavita Rao
• Other faculty Hiranya Mukhopadhyay
• Focus

  Public expenditure reform is a necessary element of all fiscal reform, but must clearly be underpinned by some understanding of the time-series properties of public expenditure. The paper models public expenditure at the level of state governments in India as a univariate process, as a first step in that direction, confined to three states: Punjab, 'Haryana, and Maharashtra, over the period 1974-98. There is trend stationarity in Punjab and Haryana, with a deterministic trend growth rate of 16-17 per cent, and clear evidence thereby of fiscal smooth­ing in the presence of periodic upward shocks of Pay Commission or other origin. In Maharashtra by contrast, aggregate expenditure carries a unit root, with no deterministic trend, and no drift term; expenditure shocks of other than Pay Commission origin appear to have been enabled with no corresponding smoothing, but there is sharp and concurrent smoothing at the time of the Pay Commission shocks, such that aggregate expenditure does not show a spike. The issue of whether the fiscal smoothing in each case was unproductive or productive remains unrevealed in the aggregate figures.