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Some politicians argue for the splitting and combining of states to increase government productivity, but there is a dearth of empirical evidence on the optimal size of a state. Using data from Indian states, I test a model of the optimal size of the state. I find that size and preference heterogeneity do not significantly affect the productivity of a state government. However, when states are split up, the productivity of the root state’s government is negatively affected. This suggests that there may be a readjustment phase after state reorganisation that brings about this negative effect. It is important to consider this effect when redrawing state borders.
in: Christopher Fleming / Matthew Manning / Adrian Miller (eds.), Routledge Handbook of Indigenous Wellbeing, London: Routledge, forthcoming