The impact of income on public health and education expenditure: Evidence from the Indian states

• Published date: 01 December 2022
• Author: Santosh Kumar Dash,Asit Ranjan Mohanty
• Date: 01 December 2022
• DOI: http://doi.org/10.1002/pa.2757

RESEARCH ARTICLE

The impact of income on public health and education

expenditure: Evidence from the Indian states

Santosh Kumar Dash

1

| Asit Ranjan Mohanty

2

1

Gulati Institute of Finance and Taxation,

Thiruvananthapuram, Kerala, India

2

Xavier Institute of Management, XIM

University, Bhubaneshwar, Odisha, India

Correspondence

Santosh Kumar Dash, Gulati Institute of

Finance and Taxation, Thiruvananthapuram

695017, Kerala, India.

Email: santosh.dash@ifmr.ac.in

Funding information

We declare that we have not received any

funding from any agency for this study.

In this study, we examine the long-run impact of state-level per capita income on

public education expenditure and public health expenditure in 17 major Indian states

over the period 1993–2017. To test for the existence of a unit root, we have

employed the Zivot–Andrews test and the Clemente–Montañes–Reyes test, which

allows for an endogenous structural break in the data series. These tests indicate that

all variables are nonstationary. Autoregressive distributed lag model with one struc-

tural break is applied to find the cointegration of variables and estimate the

cointegrating equation. The bounds test reveals the presence of a long-run relation-

ship between public health expenditure and per capita income in 12 out of 17 states,

between public education expenditure and per capita income in 15 out of 17 states.

The result shows that per capita income affects the public health and education

expenditure of states. We find elasticities of public health expenditure and public

education expenditure vary across states and are small in magnitude (less than one

for most of the states). Our results suggest that public health and education expendi-

tures are necessary goods. Based on the results, we also draw policy implications

from our findings.

KEYWORDS

ARDL, bounds test, public education expenditure, public health expenditure, social sector

expenditure

1|INTRODUCTION

There is a growing consensus among economists and policymakers

that spending on social sectors such as health and education can

ensure sustained economic growth. The quality of expenditure plays

an important role in the growth of an economy. The social sector, con-

sisting of health and education sectors, plays a critical role in contrib-

uting to the production and economic growth just as physical capital,

land, and labor. While there exist a plethora of studies investigating

the contribution of health and education to economic growth, the

impact of growth on social sector expenditures, namely, education

and health is hardly examined. Education, broadly called ‘human capi-

tal’, is the stock of skills and expertise, which one is endowed with or

gains through investment in training and education. Expenditure or

investment in education raises the efficiency and productivity levels

of individuals. Similarly, government expenditure on health plays a

critical role in building a healthy and productive population. Public

expenditure on education assumes importance in improving education

in low-income countries. It is to be noted that the human develop-

ment index, considered as a barometer of social progress, incorporates

these two components to rank countries.

Healthy workers are more productive while not-so-healthy

workers have lower productivity and tend to work inefficiently.

Importantly, healthy children can affect the income trajectories of

countries (Barro, 2013; Bloom & Canning, 2000; Lustig, 2007). In poor

countries, the government sector is the key spender of total health

expenditures. Given the importance of public health expenditure,

whether public health expenditure moves in tandem with growth has

escaped serious scrutiny. Kleiman (1974) and Newhouse (1977) have

shown that income is one of the most important factors in explaining

Received: 22 August 2019 Revised: 16 August 2021 Accepted: 28 August 2021

DOI: 10.1002/pa.2757

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https://doi.org/10.1002/pa.2757