Cornelis Haasnoot

Does Size Matter? The Productivity of Government: Expenditures and the Size of States: Evidence from India

GIGA Working Papers | 2016


  • Series

    GIGA Working Papers

    Series Number

    285

    Number of Pages

    33

    Publisher

    German Institute for Global and Area Studies (GIGA)

    Location

    Hamburg

    Abstract

    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.

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